By Clyde Noel

Stock Report

Things are going great, right? Buying a home or refinancing can give you more money to spend because mortgage rates hit a 30-year low last week. And what better time to buy a new car with 0 percent down?

The Dow Jones industrials were up 284 points, or 3 percent, to 9,608 and that topped its Sept. 10 level by three points. The Nasdaq was up 82 points, or 4.7 percent, to 1,828, up 133 points from Sept. 10 levels.

Adding more sugar to the mix, the Federal Reserve cut short-term interest rates by 50 basis points to 2 percent, which is the lowest level in 40 years.

The Town Crier index of 50 local stocks was up 5.37 percent because some of the large cap stocks had nice gains. BEA Systems, Cisco, Hewlett Packard, Nvidia, Sun Microsystems and even Yahoo! helped lead the Town Crier index.

But the picture becomes gloomy for conservative investors who count on money from bonds and certificates of deposit. Yields on two-year Treasury notes have fallen to 2.4 percent. They were nearly 6 percent last year. And let’s not talk about stingy banks and their CDs.

With lower interest rates, many corporate bonds are being recalled years before they were scheduled, and investors are left with no place to get the same return.

What’s worse, if rates would start to rise and you bought a $1,000 bond today and had to sell it before it matured, who would want to buy a 4 percent bond when investors could buy a new bond for 5 percent or 6 percent yield?

As a fixed-income investor, there isn’t much you can do but think short-term.

With rates as low as they are now, we all know they will rise in a year or two. With a short-term security, you’re going to get back your principal in a year or so and then look for a better investment picture.

Stocks are a good place for the investor who needs income. People stick to that old adage, “Never spend the principal,” so they refuse to sell their shares for living expenses.

The reason I like stocks best: Suppose you had $100,000 to invest and you put it in a bond yielding an average of 4 percent. Your annual income would be $4,000. At the end of the year, your bonds still have a face value of $100,000.

If you invested that $100,000 in stocks or a stock fund and the investment rose the same 4 percent, you would have more money in your pocket because it would be subject to a maximum capital gains tax of 20 percent if you held the shares longer than a year.

Stocks are riskier than bonds, but over time, they offer considerably higher returns.

Noel, a seasoned investor, covers the stock market for the Town Crier.