Charles Payne: I think owning a CD in a short-term account would be a smart move, particularly when one considers that Certificates of Deposit returned 4% last year versus the S&P being up only 3% and the Dow actually being fractionally lower. That said, I’m bullish on the market and I think the broad indices will be up 15% this year. Certainly the share prices of companies that deliver could see greater price appreciation, as I would only make CDs a small portion (10% or less of my total short term holdings). I-Bonds are essentially annuities, backed by the government rather than individual financial institutions. The minimum investment is $50.00 and the maximum $30,000. The maximum holding period is 30 years. Taxes can be paid or deferred for up to 30 years. Currently the nominal annual earnings rate of 6.73%. Here is the catch(s): they cannot be redeemed during the first year. There is a penalty if redeemed in the five years thereafter (typically up to 1%). Buy these in incremental bunches instead of one big buy at a time to allow more leverage when exiting.
Tune in this weekend to our Business Block, Saturday beginning at 10am ET, for more with Charles Payne and the entire FNC business team.
Question: What do you think of buy/write or option funds? I'm betting on DPD, which I purchased today at a significant discount to its net asset value, locking in a 10+ percent annual yield, paid monthly. Is this worthy of a cheer or a jeer? — Ward (Huntsville, AL)
Charles Payne: I’m not one to rain on anyone’s parade but I’m a little leery of the Dow 30 Covered Call Fund. I love the idea of writing calls against long positions, mostly, however, as a hedge and a way to protect profits. As for buying all the stocks in the Dow 30 and looking to write calls on them, I think there is a better way. Nonetheless, writing calls isn’t for novices so I understand the need to have professionals walk you through the process. Stick with it — I’m looking for a big up year and I’m looking to have my clients write calls on current winners (especially in energy) and early winners of 2006.
Question: Do you think that the Fed will increase rates in January and then pause for a while? If that happens, do you think financial stocks will increase in value during the first quarter of 2006? Thanks. — Lou
Charles Payne: Yes, I think the Fed will raise rates in January, Lou. But the good news is that I think the new guy will be able to come in and not have to raise rates (there is this wild notion that he must raise rates in order to gain the respect of Wall Street, as if he’s going through some sort of hazing ritual). I love the financials because there aren’t many rate hikes left and that is becoming clearer each day, even if Bernanke takes the bait the first time out.
Question: Could you please offer me some suggestion's as to what I should do for 2006 with my Ford stock to improve the overall performance of my 401K. My 401K plan is through the Fidelity Investment program, so if you could offer up a suggestion that is within the Fidelity family it would be if great value to me. Thank you. — Chris
Charles Payne: Even if Ford were a well-run company with a history of great execution and innovation and returns to investors, I would say not to have all your eggs in one basket. Of course, Ford is anything but all of the accolades mentioned above. I would look to balance my retirement. Within Fidelity, I like the Growth America and Small Cap America funds.
Question: My aunt died this past February and her will has just come out of probate. She held 12,000 shares of Campbell Soup stock - she worked there for years and bought these shares on the employee stock option plan. My mother is inheriting 1/5 of her estate. Her share should be approximately $70,000 - $75,000, after estate expenses are paid. Would it be wise to keep that money in Campbell's stocks or take it in cash and reinvest another way? Thanks — Pat
Charles Payne: Campbell Soup has had a tough go of it, in part to the on-the-go nation that doesn’t have time to eat soup at home. The stock has been spinning its wheels for a long time. There is value and the company could command a slight premium if they were taken over. Yet, that isn’t a good enough reason to own the stock. I would take 90% of the cash and invest it in other areas of the market, focusing on diversification into companies with growing market shares and expanding profit margins.
Charles Payne is the founder and CEO of www.wstreet.com and appears regularly on FNC's Cost of Freedom Business Block.
Charles Payne is the host of Making Money with Charles Payne (weekdays 6-7 PM/ET).