Question:
So I read the scathing article on Bill Gross clashing with former co-CEO Mohamed El-Erian in this week’s Wall Street Journal. Do you think the drama at Pimco will harm their funds? Should we stay invested?
Answer:
The take away from the article is that Bill Gross may be a difficult man to work for. However, El-Erian was supposed to be the CEO and groomed to be the successor. El-Erian left for a while to work for Harvard’s endowment and a short stint at the International Monetary Fund. He returned to Pimco as the heir apparent. The article highlights that Bill Gross is surely in control of the investments at Pimco.
However, we do not currently recommend any of the Pimco funds. One of the biggest reasons is they frequently employ leverage. If you look at the Pimco Total Return Fund on Morningstar.com, it shows that it holds 168% of its assets in bonds. They are borrowing money to buy additional bonds, which is a way to boost return if the cost of borrowing is less than what you’re earning on the investment. However this is not the safest investment method. Many mutual fund investors don’t like big swings, and the use of leverage can increase that risk.
Bill Gross hasn’t always been right either. He didn’t think the Fed would begin the taper in December 2013, and he also encouraged investors to avoid stocks in 2009. In our opinion, there are more reasons to avoid a Pimco fund than the feud between El-Erian and Gross.
Question:
I have a Roth 401(k) from an employer that I’ll be leaving at the end of the month. Can I roll that into another Roth 401(k) at my new job, or should I roll it to a Roth IRA?
Answer:
You should be able to roll it into either a Roth IRA or Roth 401(k) at your new job, assuming it accepts incoming rollovers, as most plans do. You will be limited to the investment options in your new plan, but if you move the assets to a Roth IRA at a custodian, you can invest in anything including stocks, mutual funds, exchange-traded funds, etc.
Question:
What is your advice on Vodafone and Verizon after the recent spinoff?
Answer:
Verizon Communications, Inc. (NYSE: VZ) recently purchased the 45% of Verizon Wireless previously owned by Vodafone Group plc (NASDAQ: VOD) for $130 billion in cash and stock. Management has stated the deal will be immediately accretive to Verizon earnings by approximately 10% after adjustment for non-operating charges. Verizon Wireless reported $81 billion in 2013 revenues. Vodafone shareholders received a $4.20 return of capital in connection to the transaction.
Both companies meet our investment standards for financial strength and safety. We continue to hold the stock of Verizon; however, our concern is the impact on the company’s ability to continue paying the dividend. Verizon borrowed $6.6 billion to complete this transaction, which immediately caused the company’s debt rating to be downgraded from A- to BBB+.
We recommend holding Verizon for now, but watch it closely. We sold Vodafone in 2012, and still recommend selling shares, but the company’s financial strength should be helped by the cash infusion.
At Henssler Financial we believe you should Live Ready, and that includes understanding how a spinoff may affect your holdings. If you have questions regarding your investments the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
