Personal Finance Q & A

Best buy: bonds or a money-market fund? Q. What is your advice about investing in an intermediate-term government bond fund vs. a money-market fund? With interest rates as low as they are, I'm not sure if it would be wise to go into a bond fund or to just wait a while in a money fund. I do not need the money at present. - D.D., via e-mail

A. Diversification into bonds can balance out a portfolio during stock-market declines or sudden interest-rate cuts.

Historically, when stocks fall in value, intermediate-term US government bonds (conservative investments with 3 to 10 year durations) tend to perform well, says Les Nanberg, chief fixed-income officer for MFS Investment Management, Boston.

Moreover, while yields on intermediates have fallen - to about 4.7 percent on ten-year issues, for example - they still beat money-fund accounts, which hold short-term debt instruments (usually 90 days or less) and yield around 4.5 percent.

If the economy were to slow, and the Federal Reserve again cut rates, short-term rates would take a quick hit downward, Mr. Nanberg says. But your intermediate bond fund would still earn a slightly higher yield.

Finally, bond funds are almost as liquid as money funds, Nanberg says. That is, you can almost always redeem your money without any hassle. Of course, money funds, unlike most bond funds, allow check-writing privileges. If you do buy a bond fund, look for the lowest possible expense ratio - 1 percent or less, experts say.

Q. What are the consequences to the US economy from the rising trade deficit? -"Cromarty," via e-mail

A. A rising trade deficit has both "positive and negative consequences," says Gary Thayer, senior economist with investment house A.G. Edwards & Sons in St. Louis.

On the positive side, the current high value of the dollar allows Americans to buy lots of inexpensive foreign imports. That stretches consumer's pocketbooks and keeps inflation down.

But the flip side is that Americans (and non-Americans, because of the high dollar) are buying fewer US manufactured goods. So US manufacturers are not doing as well as they might, which holds down job growth in export-oriented firms, says Mr. Thayer. The nation's overall employment rate, however, remains very high with new job growth in the service sector. The US trade deficit was $15.5 billion in November 1998, the latest month of complete data.

Questions about finances? Write: Guy Halverson The Christian Science Monitor 500 Fifth Ave., Suite 1845 New York, NY 10110 E-mail: halversong@csps.com