Considering adventures in investment 'debentures'
Q: Metropolitan Investment Securities Co. Inc. offers investment debentures and discount debentures at attractive interest rates. Does this mean that they are risky? What are debentures? What is the difference between "investment" and "discount" debentures? Also, where can I find more information about firms such as this?
L.C., Lynwood, Wash.
A: According to Vern Clemenson, a broker with Metropolitan, an investment debenture is a security offered by a corporation "backed by the full faith and credit of that organization. It is not secured by [the corporation's] physical assets," such as equipment or buildings. As a result, it carries slightly more risk than a secured asset such as a corporate bond.
A: discount debenture, says Mr. Clemenson, has the interest payment built into the face value of the instrument. For example, if you bought a discount debenture with a $1,000 face value, you might pay $910, but get back the full $1,000 in a year.
Metropolitan, Clemenson says, has been around since 1952 and operates in all states. To learn about other firms offering debentures, ask state licensing authorities.
Q: Can I apply for Social Security more than once? I have applied, but for family reasons, wish to withdraw my application and reapply in another year or so. This way, I can continue to work full time without having to limit my annual income. I am under age 65.
J.M., New York
A: Yes, you can withdraw an application and reapply at a later time, says a spokesman for Social Security. If you collect Social Security before age 65, payments will be restricted if you exceed certain earnings levels. But thanks to recent tax-code changes, those restrictions are lifted after you turn 65.
Q: If you buy into a "fund of funds," which invests in different mutual funds, do you pay an expense ratio based only on the funds in your portfolio, or do you pay both for the funds, and the management of your overall fund of funds?
T.G., Queens, N.Y.
A: It depends on the particular fund of funds. Check the prospectus. Vanguard Star Fund, for example, charges only a prorated expense for the specific funds in the portfolio. But Markman MultiFunds uses a two-tiered expense: a prorated ratio for the funds in the portfolio, plus a small charge for the overall fund.
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