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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: LemonHead who wrote (7314)	4/22/1999 7:18:00 AM
From: Bernie Goldberg	Read Replies (1) \| Respond to of 18928

Hi, Go to smartmoney.com there you can get all kinds of FREE information on mutual funds. American Funds are fully loaded at 5.75%. What that means is that with a $130,000 investment you will be paying 5.75% ($7,475)off the top, at the beginning. That will leave you with $122,525 to invest. I don't think that is a very good idea. There are a number of funds that are totally no-load with expenses that are as low or lower than American Funds. You could write to Vanguard, American Century, Stein Roe, T. Rowe Price, Janus, or Founders. I believe they all have net presences. These are just 6 top rated noload families of funds that have income producing funds. Once you get the names of the funds you are interested in go to smartmoney.com and compare them. mutualfunds.miningco.com is another good site to get information on noload funds. After you get there click on Mutual Funds 101. There have been tons of studies done, and there is no advantage to buying load funds. Another good site to get information is Morningstar. Hope this helps. Bernie

To: LemonHead who wrote (7314)	4/22/1999 11:22:00 AM
From: OldAIMGuy	Read Replies (1) \| Respond to of 18928

Hi Keith, If the principle ($130,000) is in an IRA, depending upon you wife's age, there may be a penalty for early withdrawal. If not, then it's a different story. Make sure first. I think there's a difference between discretionary income and money for living expenses that has to be considered as well. If this is truly for living expenses, then something like a closed end govt bond fund makes sense. It's not invested for growth, but for income. Also don't forget that somebody has to pay income tax as well. For now, we'll assume that the income of $1000 is PRE-TAX! If the $1000/month is discretionary income, then your thoughts of using a mutual fund with AIM as its guide starts to make some sense. I would suggest the list at my web site: execpc.com as a place to start your search. The reason for the difference is important to understand. The very same year that AIM might want to deplete her Cash Reserve for the account (bear market) she will still need cash for living expense, but may be able to give it up for a few months if it's discretionary. In one case the income is relatively steady from the principle where the other may make much more than the $12,000 one year and not nearly that much another. To start, the principle will have to be growing at a rate of about 9%/year to cover the $12,000. If we assume we split the account up into Mr. L's traditional 67% Invested and 33% Cash Reserve, the cash will be earning about $1800/year. That means the invested side must make $10,200 to keep up. Since there's only 87,100 invested now, it has to grow at a rate of 11.7% to make up for the cash being removed. Summary Principle = $130,000 Invested = $87,100 Cash Reserve = $42,900 Interest on cash ~ $1800/yr Desired income = $12,000/yr _________________________________ Invested yield must = $10,200/yr $10,200 / $87,100 = 11.71%/yr If the $1000/month is to be "After Tax", then the rate of earning is going to have to be even higher. Should you luck out in the first year and do 20%, then the burden on the remaining account in the following year will be less. The more "good years" you have, the less the strain on the account in the future to remove the $12,000. It's one of those risk/reward things. I managed a charitable remainder trust for many years. It's pay-out was 6.5% per year of the original principle. Because it was "guaranteed" pay-out, I chose to use a closed end govt bond fund to create the necessary quarterly payments. That required approximately 80% of the principle being deployed into the bond funds. The remaining 20% was put into a momentum based growth stock fund and a large cap fund, both managed with AIM. At the close-out of the account seven years later, the ratio of stock funds to bond funds was closer to 40%/60%. The stock side had at least doubled while the bond side had remained steady. It was much easier to satisfy the income requirements later on while still making the principle grow. I'm sure that if the account had remained active longer, the "growth" side would have eventually overwhelmed the "income" side. So, if the $12,000 is to be taken for living expenses and needs to be regular, you could do something similar. Using the model of that charitable trust, here's what you could do: Buy 13,100 shares of GSF with a current yield of 11.6% and a price of $7-7/8. This would cost you $103,163. It will shed the necessary $12,000 cash and be distributed monthly. The remaining $26,837 can then be applied to growth. You would be about 80% invested for income and 20% invested for growth (by coincidence). Given a few years of good market conditions, the ratio would change and, if using AIM for the growth side, there would also be further income from AIM's cash reserve as it grew. Hope this gives you some ideas. I'd guess that most commissioned brokerages if faced with this dilemma would suggest a full load "Growth and Income fund." They collect the commission and sell you a milk-toast fund. Nobody gets hurt because the milk-toast fund almost never goes down, but also almost never keeps up with market averages either. Certainly this is a much lower key approach than my suggestion and will require almost no effort! Best regards, Tom

To: LemonHead who wrote (7314)	4/29/1999 8:54:00 AM
From: Floyd Stern	Read Replies (1) \| Respond to of 18928

Hi Keith, I am responding late to your query about closed end funds, since I don;t know what you were told. I have become disenchanted with closed end funds. I had the Gemini II fund in the early 1990's which was a dual purpose fund, ie., an equity appreciation fund, and a mirror fund that got all of the income. It was managed by John Neff, the famous guru that made history with the Windsor Fund. He was a value player. The majority of closed end equity funds trade at a discount to net asset value, so they (at first blush) appear to be a great buy. However, they rarely reach full net asset value. They always remain at a discount. I took a bath (a minor one) in the early 1990's as I had some country funds and international funds in the closed-end format. I avoid international investing in distinction to the advice of brokerages such as Merrill which advise 10% to even 20% of one's assets to be international. There is just too much currency risk, political risk etc. in these stocks. Also, you just don't know the companies as well. You have to put your faith in a fund portfolio manager who is paid to invest internationally and may be gone tomorrow. A global fund which permits US stocks in it such as Scudder Global or janus Worldwide is not bad, or Fidelity International Growth & Inc. fund which is more conserative, but I am off track. I don't see the advantages to closed end funds in general and the market , I believe, has voted with me. Floyd Lakeland, FL