Dear Mr. Berko: My new broker, who is a sincere, caring, sweet young man, thinks the market could drop 20 to 25 percent.
Because I'm in my late 60s he advises, that to preserve my assets, I should sell all my stocks: IMB, Abbot Labs, Southern, 3M, American Electric Power, Clorox, Campbell, McDonalds, General Mills, Duke and Consolidated Edison that I inherited in 1985.
This amounts to $228,000, which he wants me to put into a government bond fund for income and principal safety. And if I sell now I won't pay higher capital gains taxes next year. He also wants me to sell 125 shares of Microsoft that I bought in 2003 at $28. I think that Windows 8, its Surface tablet and new smartphone could move Microsoft higher, and should I buy 125 more shares.
RP: Oklahoma City
Dear RP: “If it ain't broke don't fix it.” But tell that to a tire salesman, an auto mechanic, a stockbroker, government bureaucrats and a growing number of doctors. Sadly Microsoft's (MSFT-$27.45) Windows 8, is a textbook example of “fixin' what ain't broke!” I don't need a new browsing system, and I'm stone ginger certain tens of millions of others feel as I do.
A friend, also a dedicated Windows man, tells me 8 is so messy and complicated that it even paralyzes tech-savvy users and comments: “it's a messy smorgasbord of bewildering instructions and applications that drains your brain.” Jon Rettinger, of the Huffington Post, refers to 8 as “a confusing paradoxical riddle of an operating system.”
The guy who fixes my computer glitches recently purchased MSFT's Surface Tablet. He's chagrined because Surface runs on Windows RT and can't be upgraded. He was suckered into buying the clunky Surface for $600 when he should have bought the superior and flawless Apple for less.
He believes Surface will be a flop like MSFT's Kin Smartphone was several years ago. Now this software giant is building another phone to compete with Apple.
MSFT's hardware failures will hamper earnings; I doubt MSFT can trade comfortably above $30 in the next few years. And with PC sales beginning to fall this isn't the time to own MSFT.
The current 92-cent dividend yields 3.40 percent and may continue to grow modestly. But all the hype about 8, Surface and a smartphone is much ado about nothing. Come back home Bill Gates!
There's a possibility the Dow will take a short-term dive of 10 to 25 percent. But that's not a reason to sell your swell utilities and the “blues.” Yes, they'll fall when the market falls, and in the 28 years you've owned those stocks the market had a dozen big corrections. Guess what? All those issues still pay good dividends, most increased them annually and their market values always came back higher.
There's virtually no risk to your portfolio's 3.4 percent income.
Your charming broker must be tarred, feathered, rendered unable to reproduce, X-branded on both cheeks, banished from the brokerage industry, then forced to enlist in the French Foreign Legion as a fluffer. His recommendations are felonious, reek of self-interest and couldn't pass a smell test in a slaughterhouse sewage system.
Investing $228,000 in government bond fund will be injurious to your health and wealth. Almost three years of record-low rates have increased the potential for an epochal decline in bond prices. Yields are so low today that even a slight increase would devastate your principal value. For example investing $228,000 today in 20-year treasuries would yield 2.4 percent. If yields rise to just 2.90 percent in two years, the market value of the 20-year bond would tumble 17 percent to $189,000. That's not protection, that's stupidity! Even legendary Bill Gross, who runs the Pimco Total Return Fund, believes that the soon-to-come inflation and higher rates will “burn bonds to a crisp.”
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.