Dear Mr. Berko: I’m 47, and my $313,000 portfolio has been 85 percent invested in Standard & Poor’s 500 index issues since June 2008. My new broker, like other professionals, including many financial magazine articles, thinks the stock market is going to crash soon because the Federal Reserve will unexpectedly raise rates. He wants me to cash out, lock in my gains and put the money in the Lord Abbett Short Duration Income Fund. This fund raises its rates as the Fed raises rates, and it currently pays 3.7 percent. Then when rates stop rising and the market turns up, he says I should sell the Lord Abbett and go back into stocks. This sounds smart and riskless; I can’t find fault with the advice. But as the market crashes, how will I know when to sell Lord Abbett and get back into stocks? What do you think of this short-term bond fund? Do you approve of this idea?
I’m also considering a gamble to buy 50 shares of Rolls-Royce at $92 a share. I heard from a Lexus salesman that Rolls-Royce is going to make a small high-end sports car to sell between $70,000 and $90,000. It will be faster than the Corvette. So with Rolls-Royce styling and the Rolls quality interior, the stock should fly. Is this a good bet?
— DF, Indianapolis
Dear DF: This guy sounds like a new broker. I don’t have a problem with the Lord Abbett Short Duration Income Fund (LALDX-$4.52), but I do have a problem with the 2.25 percent commission the brokster would earn on $313,000. Stay the course and don’t sell a single share.
You may be surprised to know that Rolls-Royce (RYCEY), now $65, primarily makes engines for civilian and military planes and defense aerospace markets. It makes marine propulsion systems for the naval and civilian marine markets and power systems for the oil and gas industries. RYCEY also makes the gears, wheels, controls, bearings, seals, and other attendant parts. And a close acquaintance of mine who owns four Rolls-Royces and a helicopter store in Miami says Rolls makes the finest helicopter engines in the world but doesn’t make a passenger car. He says Bayerische Motoren Werke AG (BMW.DE-$82) in Munich makes the Rolls-Royce passenger car. And he hasn’t heard a word about a Rolls-Royce sports car. So stay away.