What do stockbrokers do with their own IRA money?
A year ago, on the theory that professionals are likely to be quite careful when it comes to their own funds, we asked eight area brokers where they planned to invest their Individual Retirement Accounts.
Now, a year later, we've gone back and talked to the same eight professionals to find out how their investments fared. We found some of the brokers did well, some did poorly and some got busy and left their funds in low-yielding money market accounts. We also asked them what they plan to do with their new 1986 IRAs. Here's what they said:
*Carole S. Rollinson, vice president and manager of the Prudential-Bache office in Bethesda, put last year's IRA into two $1,000, five-year, 11.45 percent Bache certificates of deposit. The twice-a-year interest payments went into a Bache money market fund. With interest income and appreciation, Rollinson achieved a return of 15.7 percent.
Rollinson managed a more aggressive IRA for her husband, attorney Mark Rollinson, who put his $2,000 into the stock of MacNeal-Schwendler, a firm that is involved in computer-aided design and manufacturing. Bought at $13.63 a share, the stock has gone up to $22.38, a gain of 64.2 percent.
For her 1986 contribution, Carole Rollinson will invest $2,000 in the shares of Anheuser Busch ($42.75), the nation's largest brewer. Mark Rollinson will split his $2,000, with half going to Jaguar PLC ($6.66), and half to Exxon ($51.88), which the Rollinsons call a new kind of energy hedge: luxury car vs. cheap oil. Bache analysts like Jaguar's "rebounding market image" and think that Exxon's stock price will be helped by its decision to buy back millions of its own shares.
*Robert F. Keller, financial management adviser at E. F. Hutton & Co., Bethesda, put his 1985 IRA into the Franklin U.S. Government Securities Fund, a mutual fund made up of Ginnie Maes, securities issued by the Government National Mortgage Association (GNMA). His $2,000 has grown to $2,360, a rise of 18 percent, with dividends reinvested and appreciation. In Ginnie Mae funds, share prices and yields vary with interest rates.
For his 1986 IRA, Keller will put his $2,000 into Insured Income Properties, a real estate limited partnership, operated by Franchise Finance Corp. of America. The firm buys land, builds fast-food restaurants and leases them to restaurant operators.
Keller expects a 10 percent yearly return and part of any profits realized from the sale of properties sold in the next 10 years. Keller reasons that if inflation heats up, real estate prices will rise and thus increase the value of the properties. Keller said he would not recommend the partnership for investors close to retirement. The fund will work best for those who can stay the full 10 years.
*Michael L. Mead, research director at Scott & Stringfellow, Richmond, admits he's a little like the shoemaker whose children go barefoot because he's so busy making shoes for other kids. Mead put his 1985 IRA contribution into a money fund account, but he's been so busy advising others on investments he never moved his IRA money into stocks. He plans to correct this and buy stocks with his 1986 IRA. Mead thinks stocks will continue to be strong because of several financial and economic factors that are creating a "positive climate" for equities.
Mead likes Chrysler Corp. ($52.50), Best Products ($13.63) and People Express ($9.25). He sees Chrysler benefiting from the drop in oil prices, says Best Products is in the midst of a remodeling program that could improve its earnings and expects People Express to return to profitability in 1986. People Express looks like a good stock for trading, while Chrysler and Best Products are six-month to two-year holdings, Mead said.
*Henry T. Donaldson, senior vice president at Julia M. Walsh & Sons Inc. (a division of Tucker Anthony & R. L. Day Inc.) will switch horses in 1986. He put his 1985 IRA into Fidelity Equity-Income Fund, a low-load fund made up of blue-chip stocks that seeks capital appreciation and a better yield than the Standard & Poor's 500. The fund was up 25.1 percent in 1985, but the S&P 500 rose 31.7 percent -- both with dividends reinvested. Donaldson said he will put his 1986 IRA into Washington Mutual Investors Fund, which invests in blue chips and was up 32.1 percent in 1985, with dividends reinvested. "My primary reason," Donaldson said, "is that I think the equity market will stay very strong."
*Marilyn W. Lowen, vice president at Laidlaw, Adams & Peck Inc., Rockville, put her 1985 IRA into a real estate program called Consolidated Capital Institutional Properties II. It pays 9 percent interest, and after nine years, the investor's money is returned, along with 75 percent of any profit realized from sales of the properties. For 1986, in order to diversify her holdings, Lowen will invest her $2,000 in American Capital Government Securities fund, composed of U.S. Treasury securities. The fund's goal is to enhance the return on its Treasury securities by using options and interest rate futures. In 1985, the fund returned 17.26 percent with dividends reinvested. Its managers expect a 10 to 14 percent return for 1986.
*E. Joseph West, vice president of investments at Drexel Burnham Lambert in Washington, put half of his 1985 IRA into the Lord Abbett Developing Growth Fund, composed of stocks of small- to medium-size high-growth companies. It was then selling for $9.25 a share. It is now at $8.77 a share, a loss of 5.2 percent. West said that, in retrospect, it was probably a bad idea to get into that fund at that time but that he is encouraged because the fund was up 18.2 percent in the final quarter of 1985. West did better with the other half of his 1985 IRA. It went into Drexel Burnham's Fixed Income Trust Zero Coupon Series I, a zero-coupon corporate bond fund, whose units sold for $16.45, to mature at $28.77 in 5.321 years with a locked-in yield of 11.08 percent.
This year, West said, he will put his 1986 IRA into the Drexel Burnham Fund, a growth and income fund composed largely of blue-chip stocks. The fund was up 32.1 percent in 1985, with dividends reinvested. West's company believes the expected return on stocks now is about 7 percent better than on long-term government bonds. The usual margin is closer to 4 percent, West said.
*Howard Taylor, senior financial consultant at Merrill Lynch in Washington, put 75 percent of his 1985 IRA into the Keystone Mass. B2 Investment Grade Fund, a no-load (no commission) corporate bond fund, then paying 11.78 percent a year. The fund returned 23.31 percent, dividends reinvested and appreciation, which Taylor felt was satisfactory. The other 25 percent of his money went into Merrill Lynch Hubbard Income Properties, a real estate limited partnership yielding 9 percent and offering a share of the profits when the buildings are sold in five to 10 years.
Taylor's 1986 IRA will go into an unusual type of covertible corporate bond, called a Liquid Yield Option Note or LYON, for short. A LYON is a zero-coupon device that is convertible to shares of stock of the sponsoring company. Typically, an investor buys a LYON, which costs $200 to $250, with the goal of profiting from an increase in the price of the stock. If a company's stock seems to be going nowhere, a LYON can be sold back to the company after three years, providing a 6 percent to 8 percent annualized return.
If the price of the stock booms, the company may call the bonds, at which time the investor can convert to stock. LYONs are issued by several companies. At the moment, Taylor prefers the Merrill Lynch LYON. Merrill stock recently had a good run on takeover rumors, all of which were denied.
*Leslie J. Silverstone, senior vice president of Dean Witter, Washington, intended to put his 1985 IRA into Dean Witter's Developing Growth Securities Fund, which seeks long-term capital growth by investing in rapidly developing companies. Like some of his colleagues, Silverstone was so busy he never got around to moving the IRA contribution out of his money fund. As it turned out, the Developing Growth fund didn't do very well for most of 1985. For all of the year, it gained 17.2 percent, with dividends reinvested. Of that, 15.2 percent came in the last quarter.
Better late than never, Silverstone plans to put the 1985 money into the Developing Growth fund. Then, he will put his 1986 IRA into the Dean Witter Convertible Securities Trust, a relatively new fund investing in convertible bonds and convertible stocks, seeking a high return from current income and capital appreciation.