MONEY MOVES

ASK ANY BROKER, banker or financial analyst to name the foolproof formula for investing and you’ll get as many answers as there are brokers, bankers and analysts. There is no foolproof formula. Often, it’s hard for a person to discern common opinions. One thing, however, is agreed upon: investing-and profiting-in 1983 is a different ball game from 10 years ago. Different, even, from the day before yesterday. The prospective investor is faced with countless new options and a dizzying array of variations on traditional investing tactics. Even the experts are overwhelmed. And although the complexity of modern investing means more sifting and considering, it also means more opportunities than ever. Necessary opportunities. “The one thing you can’t afford to do,” says George Andrews, chairman of Financial Strategies Group (advisors for individuals and small companies), “is just let your money sit.”

As inflation during the early Seventies pushed middle-income families and individuals into higher tax brackets, traditional investing avenues became dead-end streets. Creative minds and amended tax laws spawned a plethora of crossover programs and new investment possibilities in response to an unstable economy (and in search of tax shelters, some of which are only now being realized). Because of their low initial contributions, mutual funds and dollar-cost averaging are making the stock market accessible to more investors. Municipal bonds are producing better interest rates now than in the past four years. Money-market funds have opened up investment options that were previously reserved for the wealthy. Syndicated investment real estate is enabling relatively small investors to participate in commercial real estate ventures. And Individual Retirement Accounts are giving everyone the chance to build a solid retirement fund without the threat of current taxation. These are just the basics.

What this spells is choice: Now is the time for every personal investor to be creative-not foolhardy, but willing to consider alternatives. With careful scrutiny of all the options, you can custom-design an investment program to suit your income, your long- and short-term needs and your ultimate financial goals. “What we’ve got now,” says Scott Beck, president of Pace Financial Management, “is actually a more efficient financial system.” Better yet, you can invest across the board with unprecedented flexibility. “The current trend,” according to Kirk Tennant, assistant professor of accounting at SMU, “is opening up the market to the individual.”

But be wary. With more investing options and more people investing, you’ve got a lot of people who want your money. As always, the broker, firm or advisor you select should be reputable, have a good track record and be objectively removed from your investment options. Remember that trying to ride the crest of a trend may be just that: the beginning of the end of someone else’s good fortune. Terry Puckett of E.F. Hutton says: “The market never satisfies mass opinion.” Avoid knee-jerk reactions to appealing market signs; consider, instead, the long-term value and security. “Most investment firms play on the fact that something is momentarily up,” says Marty Cohen of Balanced Financial (an advising firm), “but economic productivity and true value is the bot-’ torn line. People have to learn to think ahead.”

No one seems to have anything negative to say about IRAs and their counterpart plan for the self-employed, Keogh funds. IRAs allow you to put up to $2,000 a year into the account ($2,250 for a person with an unemployed spouse) and invest it in just about anything-stocks, bonds, mutual funds or bank certificates. With an IRA you accumulate interest and dividends that are tax-deferred until you start withdrawing. A Keogh allows a self-employed person to place 15 percent of his income into the fund the first year, up to a maximum contribution of $15,000, which is deductible from taxable income. In the second year, as much as 20 percent of a yearly income (up to $30,000) can be invested. Withdrawals from IRAs and Keoghs can’t be made before age 59 and a half without paying a 10 percent penalty and back taxes. Management fees range from nothing at some banks to as much as $50 a year plus commissions at large brokerage houses.

Zero-coupon bonds are an increasingly popular IRA/Keogh investment. These bonds are issued at a discount that mature at face value with no annual interest. Outside of an IRA, that appreciation is taxed but not liquid. Inside an IRA or Keogh, the appreciation is tax-deferred. As a rule, you shouldn’t make speculative investments inside an IRA or Keogh because if you lose, you can’t benefit from the loss at tax time. The climate is right to start an IRA or Keogh plan, and even though ever-changing tax laws may significantly alter them in the future, investors already inside such a structure should be safe. Remember, though, that an IRA is a retirement fund and should only be considered after satisfying more immediate needs, such as housing, insurance and children’s education. Depending on the size and variety of your investments, however, after five or more years of compounding without taxation, your earnings may more than make up for a withdrawal penalty fee.

With returns between 6 and 12 percent of the initial investment, tax-free municipal bonds are a low-risk investment with a handsome profit margin. In 1982, 96 percent of newly issued tax-exempts were bought by individuals rather than institutions, an unprecedented percentage. “A”rated 20-year municipal bonds have averaged about a 9 percent interest rate lately, roughly the equivalent of 15 percent for someone in the 40-percent bracket. Longer-term bonds offer even higher yields; shorter-term bonds pay less.

You can buy municipal bonds at most major brokerage firms or at smaller firms that specialize in them. Moody’s and Standard and Poor’s (the investment trade journals) rate bonds according to the financial strength of their respective cities, states or public agencies; analysts suggest that you buy only bonds that are rated A or better.

Some experts say that municipal bonds shouldn’t be purchased in amounts of less than $25,000 because of the significant fees attached to the purchase, although you can invest in them with a minimum of $5,000. If you want to invest less in low-risk municipal bonds, you can buy diversified portfolios of 20 or more bond issues in tax-free unit trusts. The portfolios are sold as $1,000 units. The bonds mature at about the same time (in 10 to 30 years, sometimes much less), and you are paid a fixed rate of interest at set intervals throughout the year. Upon maturity, the trust dissolves and your $1,000 is returned to you.

If the Dow Jones industrial average drops in a so-called correction of the enormous rise during 1983, the ups and downs can really pay off through dollar-cost averaging. You invest an arbitrary number of dollars at regular intervals in the security of your choice, regardless of the price. Your invested dollars then buy more shares when prices are low and fewer when they are high. If you have the patience to leave the money in the stock, this plan will guarantee that your average cost will be less than it would have been if you had bought a fixed number of shares each time. The savings add up over a period of years.

Merrill Lynch’s Sharebuilder plan for dollar-cost averaging requires an initial $100 investment, after which you can invest as little at a time as $25 in stocks or $50 in precious metals. A small purchase commission is 6 percent and purchases over $300 are less. Most mutual funds offer similar plans with minimums of as little as $25. Also, many companies sponsor thrift plans that invite their employees to invest in the company’s stock on a cost-averaging basis.

Dollar-cost averaging works, but only if the stock is stable and has growth potential. Find out how the company itself is doing, irrespective of the stock. The more fluctuation in the stock, the better, but a struggling stock can’t sustain the averaging effect. This is not a good investment for someone who can’t afford-or who can’t stand the thought of-letting the price of a stock drop from time to time.

If you’re sitting precariously in the 40-percent tax bracket or above (usually an income of $59,000 or more for married couples filing jointly), don’t shy away from tax shelters in the form of real estate and oil-and-gas programs. Such shelters are sold through brokers and financial planners or on referrals by accountants. Most financial advisors suggest that you stick with publicly registered limited partnerships because they make the chance of an audit unlikely.

In real estate partnerships, in which you receive tax write-offs for depreciation, interest and other expenses, deductions may be as high as 70 percent (or even more) over the first several years. These partnerships usually last from five to 15 years. Rentals from a good shelter pay an average of 5 percent annually before taxes. When the properties are eventually sold and the proceeds are distributed, your after-tax share might equal twice of what was originally put into the shelter.

Oil- and gas-drilling partnerships (with moderate to high risk) use your money to lease drilling equipment and land. Exploratory partnerships search for oil in new fields while developmental partnerships drill for known reserves; some partnerships do both. Of course, the highly speculative exploratory partnerships are the riskiest. Limited-partner tax shelters last about 15 years, giving you most of your deductions during the first year or two, with income after that. Deductions can equal 90 to 100 percent of your investment, with an after-tax return of up to 30 percent and sometimes more. In both real estate and oil- and gas-drilling, you can begin to invest with as little as $2,500.

Ten years ago, only a large company was able to invest in such commercial real estate as an office building or a shopping mall; but today, the option of syndicated investment real estate allows individuals to invest in these frequently high-yielding enterprises. A public “syndicate” pools your money with that of other people in a limited partnership that can pay as high or higher than smaller-scale real estate shelters. Most brokerage houses can lead you to a syndicate; many programs are registered with the Securities and Exchange Commission, which may give you some additional comfort, but is still no guarantee.

There is much enthusiasm (too much, some experts say) over mutual funds. During the first six months of 1983, investors bought $22.4 billion worth-four times the previous record. These presently high-performing funds pool your cash with that of other investors and place it in a wide range of stocks and bonds. Professional money managers choose and manage the investments. Dividends and/or interest are collected and divided proportionately among the shareholders; you receive checks throughout the year. You can invest as much money as you like, although funds have minimum initial investments, typically between $500 and $1,000.

Obviously, the recent excitement about mutual funds stems from the current bull market-but that’s just the kind of excitement that some advisors believe could be dangerous. Although mutual fund returns are currently averaging between 7 and 10 percent-with some funds going as high as 24 percent on annual return-the market is becoming inundated with investors expecting a faster and higher payoff. Their eagerness to buy may make mutual funds less stable than they have been. Also, analysts believe that the glamorous performance rates of some funds may mean increasingly high-risk investments by those who want to keep their funds at the top of the list of high performers. A mutual fund is certainly a feasible investment, but it’s important for you to choose a fund that has proved its stamina in a bear market.

Aside from the well-known, high-risk investments in stock and commodities futures, there is a relatively new high-stakes gamble that is paying off big: risk arbitrage. Once the private parlor game of high-finance experts, arbitrage is now open to the public and is available at a select number of brokers. In essence, you buy stock in a company that is going to be bought by another company in anticipation of the deal going through at the above-market price the acquirer offered. In an arbitrage deal, you have to invest at least $100,000 and your broker has to be prepared to make split-second decisions when the deal goes through. You have to be prepared to lose a significant sum if the takeover doesn’t occur, but if it does occur, profits are high. Annualized gains per transaction range from an amazing 25 to 40 percent.

There are indications that late 1984 or early ’85 could bring a resurgence of inflation anda drop in the stock market. Some professionalinvestors believe it could be a good time tomove out of stocks and into more tangibleassets. But Jim McCormick, vice chairman ofEppler, Guerin and Turner Inc., an investmentbanking firm, believes that the current bullmarket (which he calls the greatest of the century) is based on sound economic reality and, .despite fluctuations, is here to stay. “The stockmarket is stronger now,” he says, “because,finally, the disparity between market price andreal value is being erased.” He advises seriouspersonal investors to play the market butprudently: “It’s the best way to go, but you haveto make smart choices.” Despite the continuedenthusiasm concerning hi-tech companies,McCormick opts for slower-moving, tried-and-true stocks. He says the most attractivedeals are the ones “most despised by investors:oil and energy stocks and stock in Texas banks”and that following the crowd by definition defeats your goal, which is to get ahead. “Adopta ’contrarian’ philosophy. The way to makemoney in the stock market is to go against theprevailing winds.” But McCormick doesn’tsuggest that an investor be whimsical. “If youwant to speculate, go to Las Vegas. Getting richquick is nothing but dumb luck.”

With so many options on the market, keeping pace with all of them can be quite time-consuming. To sort out the ever-increasing bombardment of information, many experts agree that personal computers can be a smart investment. Services (such as Dow Jones Reporter) let you plug into the stock exchange and receive the latest activity with only a 15-minute lag time. Other software features electronic spread sheets, which allow you to develop your own investment field. (For example, you can enter five stocks on your computer; then enter prediction equations. Your computer can tell you how much money to invest in each stock for optimum returns.) You can devise your own equations (or “templates”) or you can purchase them. There are templates ranging for use in home budgets to stock portfolios. Several full-service computer stores in the Metroplex offer training and installation.