HE SAID MONEY ENDORSED IT, BUT I FEAR IT'S ALL A SCAM
(MONEY Magazine) – Q. I recently invested $25,000 with a firm called the Central European Currency Exchange Banque after the salesman said it was recommended by MONEY. The Austrian-based company trades in European currencies, including those of some former Warsaw Pact members. According to a sales brochure, earnings are not reported to the IRS and are therefore tax-free. The salesman said that with Bill Clinton in the White House, U.S. taxes will go up dramatically and investors need this kind of tax haven. On paper I earned 18% in the first two months, obviously a very good return. Maybe too good. Could this be a scam? Name withheld by request Dayton A. For openers, any time a salesperson tells you that MONEY praised an investment he is touting, ask for the issue date and page number. Then check the edition to see exactly what we said. In this case, the salesman could not have come up with a citation since MONEY has never endorsed nor even mentioned this firm -- and for good reason. We discovered that this company, which operated out of a Vienna apartment building, hired salesmen with British and German accents after Clinton's election last November to pitch tax-free currency speculation to U.S. doctors as a way to beat the coming higher taxes. By the time we called Vienna in April, the firm had vanished without a trace and the Wirtschaftspolizei (loose translation: fraud squad) was investigating charges that it had made off with millions of dollars in investors' cash. Even without knowing any of that, however, there were two danger signs that might have tipped you to steer clear. The claim that you can avoid U.S. taxes is simply false: The IRS expects you to pay tax on any income you earn, whether in Ohio or Bilkistan. If you don't, and get caught, you could face as much as five years in jail and $250,000 in fines. Further, the pitch that the government might raise taxes unreasonably (many folks think they're already out of hand) plays to your fears, not your reason. Sadly, I do not think you will see your $25,000 again. If there is a lesson here, it is this: Deals that sound too good to be true often are too good to be true. Q. As I understand it, U.S. Savings Bonds yield a market rate or a guaranteed minimum of 4%, whichever is higher, so long as you keep them for five years or longer. But even if you cash them in sooner than that, they still pay 4%. Therefore, wouldn't they make a particularly good place to park short-term cash? William Forsythe Oakdale, Pa. A. Yes, the government will pay 4% on savings bonds held six months or more, and that's free of state and local taxes too. So savings bonds easily beat six-month bank CDs, now paying around 3%. Q. How can I invest in mutual funds that are owned or run by minorities? Rachel M. Bryant Wilmington A. We couldn't find any major mutual funds operated by minority-owned companies, but there are many fund managers who happen to belong to minority ethnic groups. Eric McKissack, who runs the Calvert-Ariel Appreciation Fund (up 8.16% in the year to April 1; 800-368-2748), is African American; Robert Rodriguez, manager of the First Pacific Advisors' New Income and Capital funds (up 14.47% and 14.23%, respectively; 800-982-4372), is Hispanic (his father emigrated from Mexico). Still, choosing a fund based on its manager's ethnic origins seems like a very PC investment strategy (by PC, I mean poorly conceived). If your aim is to channel money into minority communities or businesses, you might consider the so-called socially conscious mutual funds. For instance, another Calvert fund -- Social Investment Equity -- buys shares in firms that are committed to equal-opportunity employment and that have minority managers, among other criteria. And the Working Assets Money Market Portfolio (800-223-7010) goes for companies that create jobs, finance moderate-income housing and honor fair employment practices. (For a list of other good-guy funds and firms, see Socially Responsible Investing by Alan Miller, available for $19.95 from the New York Institute of Finance.) One caveat: Socially conscious funds may lag their unconscious siblings in performance. The Calvert fund, for example, returned 9.83% on average for the past three years, vs. 14.77% for the average growth fund. And Working Assets is currently yielding about 2.24%, while ordinary money funds average 2.7%. Q. My roommate and I bought a condominium together last year. Although we each pay half of all bills, I can get more out of the deductions for mortgage interest, points and real estate taxes. That's because I am in a higher tax bracket. My roommate is willing to let me take 100% of the deductions. Is that legal? Betsy Rodriguez Nashua, N.H. A. Sorry, you can deduct only what you actually pay. The law says that even if, for example, you write all the checks and your roommate reimburses you in cash, you are both still limited to deducting your respective shares. Q. Last April, I bought 300 shares of Steinmart, a Florida-based off-price department store chain that seemed likely to grow. My husband purchased 200 shares of Musicland, owner of the Sam Goody music and Suncoast video stores. He expected it to profit from the growing use of CD players and videocassette recorders. This fall, Steinmart more than doubled but then fell by 23%. Musicland, meanwhile, didn't go anywhere. We did a lot of research before investing but -- did we miss something? Martha Levardsen and Jack Grady Bossier City, La. A. Not much, I'd say. Both are relatively small companies, implying that their stocks may be somewhat volatile. But analysts say you should do fine if you're willing to hold on for at least three years. So far, in fact, your record looks pretty good. While Steinmart (SMRT, sold over the counter) peaked at $31 a share in November, it was recently trading at $25 -- a 79% gain from the $14 you paid. And Smith Barney analyst Catherine Blednick and others we consulted think the company will keep expanding. As for your husband's investment, the analysts were less enthusiastic but not discouraging. They say Musicland (MLG, traded on the New York Stock Exchange) suffered when teenagers -- its main customers -- lost jobs and parental handouts during the recession. But since your husband bought at $13.75 and the stock recently stood at $16, he still gained 16.4% in a year. That sounds better than a free copy of ''Sinead O'Connor and Barry Manilow Sing the Chipmunks' Greatest Hits'' (ugh!). Analyst Craig Bibb of Paine Webber likes it that Musicland is still the largest company in its segment of the home entertainment market and boasts a reasonably attractive price/earnings ratio of about 15. So your homework paid off. In fact, next time I have to figure out where to put some of my money, may I write to you? |
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