
##2018874 Section : FORECAST <p> The economy is stalled , the stock market looks shaky , and yields on safe investments such as money funds are pitiful . Who could blame small investors for thinking that next year will be a washout ? But before you hide all your money in a mattress -- or surrender it to a 5% bank certificate of deposit -- you can consider this presidential election years such as 1992 usually tend to be profitable for shrewd investors . <p> Of course , the upcoming elections wo n't be the only factor that affects the performance of the economy in general and your own investments in particular . Nonetheless , past elections suggest that 1992 will be a profitable year for stocks , equity mutual funds , select bonds and other income investments . Says James Stack , editor of the investment newsletter InvesTech Market Analyst : " You can bet your bottom dollar that President gush and Fed chairman Greenspan will do everything in their power to ensure an expanding economy and a healthy stock market by November . " THE OUTLOOK <p> @ @ @ @ @ @ @ @ @ @ likely to hold for small investors , on Oct. 15 MONEY convened a roundtable of five widely respected investment strategists and money managers -- James Stack , Michael Metz of Oppenheimer , Claudia Mott of Prudential Securities , Michael Hirsch of M.D. Hirsch Investment Management , and Martin Wade of T Rowe Price . Highlights of the panel 's discussion and their forecasts for the coming year are given in the story on page 106 . In addition , MONEY interviewed dozens of other experts about the 1992 outlook . Here 's what analysts see ahead : <p> Small-company shares could be the best performers next year , with gains of 15% or so . The prices of small stocks are up as much as 50% since January , even after their mid-November pummeling . However , says Claudia Mott , Prudential 's director of small-company research : " Their valuations are still low . " And the Dow 's 120-point plunge in November " only made top-quality stocks more attractive , " she adds . <p> Blue chips could provide a 12% return , including dividend income . Michael Metz @ @ @ @ @ @ @ @ @ @ the most pessimistic of our forecasters . Although he likes small stocks , Metz considers blue chips overpriced and thinks a market decline to as low as 2700 may now be under way . After that drop , Metz expects stocks to rebound before the November elections . Still , he foresees a high on the Dow of only 3100 in 1992 . The four other roundtable participants expect a greater rise . Stack sees the Dow going as high as 3450 during 1992 , while Hirsch , Mott and Wade think it will end thc year in the 3200 to 3280 range . Moreover , many experts say that some big-company growth stocks , such as drug companies , could post gains similar to those on small stocks with considerably less volatility . <p> While the outlook for bond prices is unclear , safe income investments will yield at least 7% . Almost all the forecasters we consulted expect the Federal Reserve to push short-term interest rates lower -- or at least hold them steady -- through next year 's elections , but they were sharply divided on the outlook @ @ @ @ @ @ @ @ @ @ manager of the T. Rowe Price International Stock Fund , believe that yields on 30-year Treasuries could drop almost a full percentage point to 7% or less by the end of 1992 . That would mean price gains of nearly 10% for long-term bonds and bond funds . <p> Other strategists see an upturn in long-term rates in 1.992 , with yields on 30-year Treasuries reaching 8.3% or more , which could knock down prices by nearly 10% . " Small investors should n't make new purchases of long-term bonds , " says Andrew Addison , editor of the Addison Report newsletter in Franklin , Mass . Michael Hirsch agrees : " There are always risks , and the risks for bonds are sharply higher rates . " Hirsch , who projects that long-term Treasury yields could hit 8.5% by the end of 1992 , recommends intermediate-term bonds or bond funds that have average maturities of less than 12 years . <p> Even many experts who expect long-term rates to drop next year acknowledge that issues with maturities of 20 years or more could be volatile if the Administration meddles with @ @ @ @ @ @ @ @ @ @ risk is an ill-considered policy intitiative enacted in a panic atmosphere , " says economist Richard D. Rippe at Prudential Securities . The three MONEY panelists who are bullish on bonds recommended issues that have maturities of around 10 years and that yield at least 7% . <p> The stories in this special year-end issue outline your best strategies for equity mutual funds ( page 76 ) , stocks ( page 84 ) and income investments ( page 90 ) , as well as the smartest places to keep your cash ( page 96 ) and some venturesome choices for diversification ( page 100 ) . For a quick rundown of our top investment picks for 1992 , see the story on page 56 . <p> The MONEY forecast for the stock market ( shown in the chart at right ) and for other investments is based on our belief that the recession is over , and that a recovery will continue and pick up speed next spring . Among the chief reasons for a rebound is the approaching presidential election . <p> One popular book in Washington this season is @ @ @ @ @ @ @ @ @ @ authors Allan J. Lichtman and Ken DeCell identify 13 factors that have determined the outcome of all presidential elections since the Civil War . Since 1984 , they have used their 13 keys to predict successfully numerous senatorial and presidential elections . Most notably , they forecast George Bush 's victory over Michael Dukakis in May 1988 at a time when Dukakis led in the polls 54% to 38% ( yes , he was once ahead by that much ) . <p> Of the 13 keys , two of them would have predicted all but one presidential election , that of 1892 when Grover Cleveland beat Benjamin Harrison . The first key is whether the candidate of the incumbent party faced a serious challenger in the primaries . Although Bush may have to fend off attacks from rogue Republican David Duke or conservative columnist Patrick Buchanan , he seems likely to be renominated without a challenge that would split the Republican Party . <p> The second crucial key is the economy -- and there Bush is vulnerable . Even if the current barely perceptible upturn -- which economist Gary Ciminero of @ @ @ @ @ @ @ @ @ @ -- reaches a 3% growth rate next year , the Bush presidency will be responsible for the slowest growth of any presidential administration since World War II . It will work out to a feeble 1.4% or less annually . Moreover , a few forecasters think the economy could actually decline in the current quarter , or perhaps in the first quarter of 1992 . That would certainly raise the decibel level of the pundits who have been shouting , " Double-dip recession ! " <p> Even a rotten quarterly report , though , would not doom Bush 's bid for re-election , as long as the economy is in a clear upswing in the three months right before voters go to the polls . The smartest strategy for an incumbent President is to permit any likely recession to occur as early as possible in the term , so that there is time to pump up the economy right before the elections . THE PATTERN <p> Although the Federal Reserve switched to an easy-money policy in December 1990 , Bush still has not figured out how to get the economy moving @ @ @ @ @ @ @ @ @ @ frantic efforts to supercharge the economy in early 1992 -- and produce an intensified version of the long-recognized presidential election cycle in the stock market . Here 's what typically happens : <p> Stocks have their biggest gains in the year before the election . Since 1900 , that gain has averaged 14.1% , and since 1945 , 14.3%. ii Stocks post additional gains in the election year . Since 1900 , they have averaged 10.1% , but only 5.2% since 1945 . <p> Stocks often drop early in an election year and then rally strongly . The main reason that overall election-year gains have been weaker since 1945 is that the stock market has often dropped 5% to 10% in the first quarter . <p> Stocks reach their highs between September and December of the year . The Dow industrials have set their yearly highs during the last four months in six of the seven presidential election years since 1964 . In the one exceptional case , 1984 , the Dow came within 4% of its high earlier in the year . <p> Stock investors earn the biggest profits between @ @ @ @ @ @ @ @ @ @ in the year . Since 1945 , the smallest gain over this period has been 9.6% in 1960 ; the biggest has been 31.6% in 1980 . <p> How does the stock market look heading into the 199 ' 2 elections ? Right on track , despite November 's headline-making plunge . The market 's gains so far in 1991 , around 11% , are slightly below the 14% average for pre-election years . And the pieces are in place for further gains next year . As the chart at left shows , when the Federal Reserve cuts the discount rate three times in a row , the Dow generally gains as much as 37% over the following 18 months . The Fed has now cut the discount rate five times ( December 1990 , February , April , September and November ) . And since the third cut , the Dow has risen only 6% , leaving room for substantial further appreciation . The experts MONEY surveyed forecast a rise in the Dow of 6% to 9% for 1992 , a little higher than the typical 5% to 6% gain @ @ @ @ @ @ @ @ @ @ up in a straight line , though . The possibility of a stock market tumble early in 1992 was underscored by the November drop . And even if Metz is wrong when he says that a market slide is already under way , stocks will remain vulnerable . The reason : blue chips are trading 10% to 15% above their usual levels . <p> The charts at right show why some analysts think stocks are overpriced . According to the Leuthold Group in Minneapolis , even after corporate profits are normalized -- adjusted to eliminate the effects of the recent recession -- the 30 stocks that make up the Dow are trading at price/earnings ratios that average 17.2 , compared with a typical Dow P/E of around 15 ( based on the median for the past 65 years ) . Moreover , the Dow stocks are yielding only 3% on average , compared with a typical Dow yield of more than 4% . In the past , when yields have dropped below 3% , the market has usually suffered declines of as much as 14% . <p> MONEY 'S forecasts are @ @ @ @ @ @ @ @ @ @ that conservative small investors should not attempt to time the market and catch short-term stock price swings . But we do think that you should take stock price levels into account in allocating the money in your portfolio among various types of investments . <p> Over the past four years , our value-conscious approach has steered readers away from two dangerous situations . In July 1987 , MONEY noted that stocks were substantially overpriced three months before the October stock market crash . And in July 1990 we warned that stocks were 15% too high right before that year 's bear market began . Although no one can be sure that today 's high prices portend an equally severe drop , we think you should invest very carefully . WHAT TO DO <p> Here 's the the portfolio strategy we suggest you follow throughout 1992 : <p> Spread your money among stocks , bonds and cash investments . Small investors should balance stock and equity fund holdings with less risky investments such as bonds , certificates of deposit and money-market funds . <p> Keep 25% to 35% of your money in @ @ @ @ @ @ @ @ @ @ portfolio : in the long run , they outpace most other investments by at least two percentage points a year . Given the favorable ? outlook for 1992 as a whole , you should divide your money between small-company mutual funds , which are likely to be the best performers , and conservative equity funds or blue-chip stocks that would hold up better in a market decline . Then if share prices dive early in the year , you can raise your equity holdings to as much as 50% . <p> Put 25% of your portfolio in bonds or other income investments . We recommend that you stick with conservative choices -- intermediate-term bonds with maturities of seven to 10 years -- or top-quality utility stocks . <p> Our interest-rate forecast is defensive . Most economists think that inflation will stay low , around 3.5% . We think the Bush Administration , however , will speed up the economy so much next year that consumer prices could rise faster than most investors expect -- at a 4% to 5% annual rate , at least for a few months . An inflation @ @ @ @ @ @ @ @ @ @ or higher . Bonds with maturities of less than 10 years will minimize your risk of principal losses , and utilities will protect you against any longer-term increase in inflation ; whereas bond interest payments are fixed , utilities can raise their dividend payouts over time . <p> Maintain a large cash reserve . Even though yields on money funds and CDs are at 14-year lows , you should keep as much as 40% of your portfolio in secure short-term investments . Do n't take risks to get the highest available yield . Your chief objective should be safety so that you have money to buy stocks or bonds if their prices fall to bargain levels . <p> And if you are a sophisticated investor , consider diversifying beyond the basics . Investments such as foreign stocks , real estate and gold can help boost your return while trimming the overall risk of your portfolio . You do n't need a pollster to tell you that 's the strategy for winning investment returns . THREE SCENARIOS FOR YOUR ' 92 RETURNS TABLE THE GOOD NEWS TABLE THE BAD NEWS TABLE <p> @ @ @ @ @ @ @ @ @ @ <p> ILLUSTRATION <p> by MICHAEL SIVY <p> 
##2018875 Section : TOP PICKS <p> Just about everything you could buy went up in 1991 , " says Walter Frank , chief economist for mutual fund newsletter publisher IBC/Donoghue in Holliston , Mass . " But in 1992 , investors will need to be extremely selective . " So even though the approaching elections are a plus overall for small investors , you still need a name-by-name rundown of next year 's likely winners -- and losers . <p> This article spotlights the most promising choices among mutual funds , stocks , income investments and cash , as well as some assets that may deserve a modest place in your portfolio -- foreign stocks , real estate and gold . Equally important , it will help you steer clear of a variety of investments that could ruin your chances for a prosperous year . Once you 've read this overview , you can turn to the stories that follow for fuller descriptions of the smartest investment strategies -- and even more picks . <p> In general , stock investors should favor the shares of firms that can deliver @ @ @ @ @ @ @ @ @ @ important to you , your diversified holdings should also include stocks that pay above-average dividends ; they will likely do well as money fund investors search for higher yields . If income is important , look for conservative issues ; do n't reach for the highest payouts on volatile long-term bonds or income stocks with low credit ratings . Instead , aim for yields of as much as 7.5% in less risky short -- and intermediate-term bonds or top-quality utility stocks . Here 's a quick rundown of the experts ' top picks for 1992 , as well as the investments that you should avoid : STOCK FUNDS Small-stock portfolios will lead the pack . <p> BUY funds that invest in the shares of small companies . Such stocks gained 37.5% through the middle of November -- but despite that run-up they have climbed only 49% since 1983 , vs. 133% for the S &P; 500 . Thus you can anticipate big profits in funds such as T. Rowe Price Small Cap Value ( minimum investment of $2,500 ; 800-638-5660 ) , which generally holds shares of the tiniest firms -- @ @ @ @ @ @ @ @ @ @ Such stocks may be underpriced because they are neglected by analysts . Manager Preston Athey 's $44 million fund has gained 10.3% annually over the past three years , compared with 7.8% for its average competitor . <p> Columbia Special ( $2,000 minimum investment ; 800-547-1707 ) holds an eclectic mix of small and medium-size stocks . Alan Folkman , 49 , invests about 50% of the fund 's $230 million portfolio in fast-growing companies such as biotech firm Genzyme ; the rest is in less popular stocks , a group that recently included capital-goods manufacturers . Over the past three years , Folkman 's portfolio has racked up 18.4% annually . BUY the funds that hold fast-growing or undervalued blue-chip stocks . Such funds could deliver double-digit total returns this year and are less volatile than small-company portfolios . Janus Fund ( minimum investment of $1,000 ; 800-525-8983 ) holds the shares of stable growers , such as drug manufacturer Merck and discount retailer Wal-Mart , that can boost their earnings by 15% or more annually . Manager James Craig , 35 , also likes foreign stocks that may offer @ @ @ @ @ @ @ @ @ @ the Mexican telephone company that analysts expect to show 30% annual profit growth through mid-decade . The $2.6 billion fund has posted 27.4% annual gains over the past three years . <p> Richard Howard , 45 , has guided $202 million T. Rowe Price Capital Appreciation ( $2,500 minimum ; 800-638-5660 ) to 12.9% annual gains over the past three years . He buys companies with overlooked growth potential ; recent holdings included battered giants IBM and Polaroid . <p> AVOID sector funds that have outpaced the stock market by wide margins . Funds that invest exclusively in one of the market 's hottest corners -- such as biotechnology or financial services -- have gained 50% or more since January . Among them : Financial Strategic Financial Services , up 67% , which holds shares of banks , insurance companies and brokerages . Although manager Phil Dubuque , 29 , has proved adept at finding the best values in his sector , the fund is likely to give back gains in any market sell-off . In fact , when the S &P; 500 suffered a 3.7% loss on Nov. 15 , @ @ @ @ @ @ @ @ @ @ , falling 5.1% . STOCKS Look for steady growth and financial strength . <p> BUY stocks of large , established growth companies that can deliver earnings gains even in tough times . Some of the safest stocks could also be among the market 's biggest winners this year as investors who are worried about the anemic economy look for secure havens . Shares of $8.7 billion Merck ( recently traded on the New York Stock Exchange at $145 per share ) are a likely candidate for gains . The world 's leading producer of prescription drugs , Merck is headed for its sixth straight year of double-digit growth in earnings , sales and dividends . Its recently introduced blockbuster drugs -- which include Mevacor and Zocor to treat high cholesterol -- will help boost earnings by as much as 20% annually over the next three to five years . <p> A string of successful acquisitions has profoundly transformed Philip Morris ( NYSE , $67.75 ) from a tobacco company to a broad-based consumer-goods business . In fact , the company now derives more than half of its $60 billion in annual @ @ @ @ @ @ @ @ @ @ 's Eye and Jell-O . Profits are likely to grow by as much as 22% a year through the mid-1990s , up from the firm 's already splendid annual profit growth of 19.5% over the past decade . Despite those stellar prospects , the stock currently trades at just 12 times 1992 estimated earnings of $5.68 a share . <p> BUY the shares of small to medium-size companies whose leadership positions in niche markets ensure steady profit growth . As a result of the stock market 's strong gains this year , some of these stocks are pricey now , but you should consider buying them if they drop to more attractive levels in a stock market decline . For example , you could select a target price of $84 for $835 million U.S. Surgical ( NYSE , $94 ) , which controls more than 80% of the market for surgical clips and internal staples . Analysts say that with no meaningful competition and continuing demand for its products the company can boost its earnings by 65% this year and by 30% to 35% annually after that . <p> More conservative @ @ @ @ @ @ @ @ @ @ ( NYSE , $37.25 ) , the nation 's largest payroll processor , if its price drops to $32 . ADP has racked up 41 straight years of double-digit profit growth , and analysts say the company could boost its earnings by at least 15% annually through 1996 . <p> AVOID the stocks of companies in industries that are in long-term decline . Contrarian investors may be tempted to buy General Motors ( NYSE , $30.50 ) , Ford ( NYSE , $24.25 ) and Chrysler ( NYSE , $11.50 ) . But the risks are too great , and the payoff too uncertain . The Big Three U.S. automakers posted a combined loss of $1.7 billion in the third quarter of 1991 on their way to the biggest annual deficits in their histories . And it 's not just the recession : all three have been losing market share to Japanese competitors for five years . With no relief in sight -- their total share of the U.S. market is now 64% , vs. 66% a year ago -- earnings growth at these firms will be poor at least through @ @ @ @ @ @ @ @ @ @ . <p> BUY Treasury notes with intermediate maturities or funds that hold them . These issues mature in four to 10 years , currently yield as much as 7.4% -- only about half a percentage point less than 30-year Treasury bonds -- and are roughly 35% less volatile than long-term issues . The best buys now are 10-year Treasury notes ( 7.4% yield ) . Investors willing to pay for the convenience of a mutual fund that holds intermediate-term Treasuries should choose one with expenses below 0.8% a year such as Benham Treasury Note Trust ( 5.9% yield ; minimum of $1,000 ; 800-472-3389 ) or recently launched Vanguard Intermediate-Term Treasury ( 7.1% estimated yield ; minimum of $3,000 ; 800-662-7447 ) . <p> BUY high-quality intermediate-term municipals or funds that hold them . Municipal issues rated AA or AAA by agencies such as Standard &; Poor 's currently offer tax-exempt yields of about 5.3%-equivalent to a taxable payout of 7.4% or more for investors in the 28% federal tax bracket or above . Consider general-obligation issues directly backed by the states that have the strongest finances , such as AAA @ @ @ @ @ @ @ @ @ @ recently traded at $1,020 to yield 5.2% , and AA+ State of Georgia General Obligation 6.75s of 1997 , recently trading at $1,068 to yield 5.3% . <p> As an alternative , consider an intermediate-term muni bond fund that has at least 75% of its portfolio in munis rated A or better . Such funds yield about 5.6% , equivalent to a taxable yield of 7.8% or better for top-bracket investors . Two of the best : Vanguard Municipal Intermediate Term ( 6% yield ; $3,000 minimum ; 800-662-7447 ) and Dreyfus Intermediate Municipal Bond ( 6% yield ; $2,500 minimum ; 800-645-6561 ) . <p> BUY pre-refunded municipal bonds . These issues , backed by Treasuries held in escrow accounts , carry no credit risk and currently pay tax-exempt yields of around 5.3% . Two solid picks : Piedmont Municipal Power Agency South Carolina 9.7s , recently yielding 5.3% , selling for $1,198 per bond and pre-refunded to mature at $1,030 in 1996 ; and Austin Texas Utility Revenue 10.25s , 5.2% yield , trading at $1,177 per bond , pre-refunded to mature at $1,020 in 1995 . BUY shares @ @ @ @ @ @ @ @ @ @ , or a utility mutual fund . Some electric utility stocks with strong financial backing are currently paying yields up to 7.8% . And unlike bonds , which pay a fixed rate of interest , these utilities are likely to raise their dividends by as much as 5% annually over the next five years . That should boost their share prices at similar rates , providing investors with annual total returns of 9% or better . The table on page 95 lists 20 top utilities to buy now . Among them : Central &; Southwest ( NYSE , $50.25 ) , which recently was yielding 5.8% and is likely to deliver annual dividend growth of 5.5% over the next five years for a total return of over 11% ; and Kentucky Utilities ( NYSE , $25.50 ) , which has a 5.9% yield and projected dividend growth of 3.5% for a total return of about 9.5% . <p> As an alternative , you can buy shares in a mutual fund that holds utilities . Two sound choices are Fidelity Utilities Income Fund ( 5.2% yield ; $2,500 minimum investment ; 800-5448888 @ @ @ @ @ @ @ @ @ @ minimum of $2,000 ; 800-634-5726 ) . <p> AVOID the high-yielding shares of financially troubled utilities . Payouts of 8% or higher often signal that a utility 's shares are depressed because the company lacks financial strength . Centerior Energy ( NYSE , $18.75 ) , yielding 8.5% , must pay out 94% of its current earnings to maintain its dividend , and also operates in slow-growth markets such as Cleveland . CASH Shop for above-average yields -- but put safety first . <p> BUY government money-market funds that hold only direct obligations of the U.S. Government . Their portfolios are free of default risk , and some pay yields as high as 5.8% . Better yet , in most states the income from these funds is exempt from state and local taxes , which can add half a percentage point or more to your after-tax return . Here are two high-earning choices : United Services Government Securities Savings Fund ( 5.8% yield ; $1,000 minimum ; 800-873-8637 ) and Dreyfus 100% U.S. Treasury Money Market Fund , LP ( 5.6% yield ; $2,500 minimum ; 800-645-6561 ) . <p> BUY @ @ @ @ @ @ @ @ @ @ portfolios of U.S. Government or corporate securities that mature in one to five years , and are only slightly more volatile than money funds . The safest choices among corporate funds , which can yield up to 8.4% , are those that invest primarily in issues rated AA or better . Two examples : Neuberger &; Berman Limited Maturity Bond ( 6.3% yield ; minimum of $5,000 ; 800-877-9700 ) and Scudder Short . term Bond ( 8.4% yield ; minimum of $1,000 ; 800-225-2470 ) . <p> Government funds carry no credit risk at all . Interest from those that hold only direct U.S. Government obligations is usually exempt from state and local taxes ; they currently yield as much as 6% . Here 's your best choice now : Vanguard Fixed-Income U.S. Treasury-Short-term ( 5.8% yield ; $3,000 minimum ; 800-662-7447 ) . <p> BUY adjustable-rate mortgage funds that carry no sales charge . These funds are about as stable as short-term bond funds , and they offer yields of up to 7.4% . The funds invest in adjustable-rate mortgages , whose interest rates are reset semiannually or annually @ @ @ @ @ @ @ @ @ @ to changes in interest rates . <p> Until recently , investors had to shell out sales charges of as much as 4% for ARM funds . But since September , two fund families have launched the first no-load entries in the category : Benham Adjustable Rate Government Securities Fund ( 7.4% yield ; $1,000 minimum ; 800-472-3389 ) and T. Rowe Price Adjustable Rate U.S. Government ( 7% yield ; minimum of $2,500 ; 800-638-5660 ) . <p> AVOID single-state tax-exempt money funds . Because they invest in the municipal securities of a single state , these funds yield as much as 4.5 % , and for that state 's residents , the income is typically exempt from state as well as federal income tax . But that advantage is n't worth the extra risk of holding a portfolio that lacks diversification across state lines . In fact , analysts say it 's possible that a tax-free money fund could suffer principal losses of as much as 5 -- %and single-state funds are the likeliest candidates . FOREIGN INVESTMENTS Do n't miss out on growth abroad . <p> BUY diversified funds @ @ @ @ @ @ @ @ @ @ ride out any setback in the U.S. market . T. Rowe Price International Stock Fund ( $2,500 minimum ; 800-638-5660 ) has posted annual returns of 18% over the past 10 years , vs. 14.7% gains for the average international fund . More than half the $1.4 billion fund 's holdings are in Western Europe . Portfolio manager Martin Wade has plowed another 16% of the fund 's assets into booming Pacific Rim countries -- such as South Korea , Malaysia , Singapore and Thailand . REAL ESTATE Stick with cash-rich investment companies . <p> BUY shares in financially strong real estate investment trusts ( REITs ) that own undervalued properties . These companies , whose shares are traded on exchanges like any other stock , pool investor cash to buy properties or make mortgage loans . As the real estate market begins to improve in some areas of the country , well-managed REITs that are able to acquire quality properties for bargain prices can offer yields of 6% or higher and the potential for solid capital gains of 5% or more over the next year . Richmond 's United Dominion @ @ @ @ @ @ @ @ @ @ is poised to capitalize on the depressed real estate market in the Southeast : the $295 million REIT has assembled $52.5 million in bank lines of credit , which it can use to buy new properties . Since May , United Dominion -- which owns more than 10,000 apartments and 1.7 million square feet of retail space -- has bought 1,160 apartment units in North Carolina and Virginia . Such acquisitions could help fuel 12% earnings growth next year . GOLD Buy the mines , not the metal . <p> BUY shares of leading gold-mining companies with a strong competitive edge . Gold recently fetched a paltry $364 per ounce , a far cry from its peak of $850 in 1980 . Although few analysts expect a rebound soon , some mining firms have glittering prospects . Those that earn above-average profits and are in creasing their production can post strong earnings gains even when the metal 's price remains stagnant . Among them : $619 million Newmont Mining ( NYSE , $38.25 ) . The firm 's strict cost controls and superior mining technology enable it to spend far less @ @ @ @ @ @ @ @ @ @ an ounce , vs. an industry average of $250 . Newmont 's earnings are likely to grow by 15% or more this year as the company boosts its annual production of gold by an estimated 6.6% to 1.6 million ounces . <p> BUY shares in leading precious metals mutual funds . Such funds allow you to reduce your risk by investing in a wide range of mining companies operating in different countries . Vanguard Gold and Precious Metals Portfolio ( $3,000 minimum investment ; 800-662-7447 ) has earned annual returns of 7.5% over the past five years , compared with 3.3% for the fund 's average competitor . David Hutchins , the manager of the fund , spreads his mining-share portfolio among the stock markets of North America , South Africa and Australia . <p> AVOID gold bullion and coins . Not only is the price of the actual metal likely to stay flat in ' 92 , it can cost plenty to buy and hold the stuff . Banks and brokers charge markups and fees that can range as high as 10% if you invest less than $5,000 in bullion @ @ @ @ @ @ @ @ @ @ American Eagle ; you may also incur annual storage costs of 0.5% to 1.5% . The typical markups on collectible coins purchased through dealers are even worse -- up to a gold-digging 30% or more . <p> ILLUSTRATIONS <p> by CLINT WILLIS <p> 
##2018876 Section : MUTUAL FUNDS <p> The ballots are n't even printed yet , and the voting is nearly a year away . But mutual fund prognosticators are already declaring a winner for the election year -- small-company stock funds . <p> The reason that fund experts believe small-stock funds will be front-runners in ' 92 , just as they were this year , is simple . During the early stages of an economic recovery , the stocks of Danny DeVito-size companies have historically delivered Schwarzenegger-scale returns . Therefore , the funds that generally invest in companies with market capitalizations ( the total value of outstanding shares ) of less than $800 million figure to explode upward much more quickly than the shares of larger outfits if the much-debated economic recovery takes hold next year . " Small-stock funds could gain up to 15% in ' 92 , " says Ken Gregory , editor of L/G No-Load Fund Analyst ( 300 Montgomery St. , Suite 621 , San Francisco , Calif. 94104 ; $149 a year ) . What 's more , Gregory and others expect small-company funds to @ @ @ @ @ @ @ @ @ @ percentage points a year over the next three years , piling up total gains of as much as 55% , vs. 35% or so for the big-stock crowd . <p> Do n't expect an easy glide to those alluring returns , however . For one thing , small-stock funds ' recent strong performance -- up 55.9% for the year to Nov. 15 -- suggests they could be vulnerable to a setback . Indeed , when the Dow plunged nearly 4% , or 120 points , on Nov. 15 , the bio-technology stocks held by some aggressive small-stock funds were hammered down a staggering 13% . There may be even more turbulence in the year ahead . If the stock market follows the usual pattern of presidential election years and dips 10% or so next spring before rallying again in the fall , small-company funds could decline 15% or more before they eventually rebound . <p> Given the possibility of such sudden swoons , fund investors should consider three strategies for the coming year . First , to cushion the impact of a possible stock market dive , limit your holdings of @ @ @ @ @ @ @ @ @ @ . If you 're below that mark , use whatever declines do occur as an opportunity to scoop up small-company funds at bargain prices . Second , stash the balance of your equity holdings in a diversified blend of growth and total-return funds that can deliver consistent gains averaging 10% to 12% a year over a variety of economic conditions . And third , consider dollar-cost averaging into whatever funds you choose . Investing a fixed amount at regular intervals prevents you from buying too many shares when stock prices are over-inflated , as many market seers believe them to be right now , thereby lowering your average cost per share and increasing your return . <p> The split-your-ticket approach is essentially the one that Tom Holstein , 30 , and wife Teresa , 26 , pictured on page 79 , have taken with their $40,000 mutual fund portfolio . To cash in on the oversize gains projected for small stocks in ' 92 and beyond , the St. Louis couple in May invested an aggressive 25% of their overall portfolio in such small-company no-loads as Twentieth Century Ultra and Twentieth @ @ @ @ @ @ @ @ @ @ . But to rein in their portfolio 's volatility , the couple have $24,000 in stable large-stock funds , including 5.75%-load Investment Co. of America . The remainder of their fund shares are sprinkled among income-producing total-return funds and bonds . " This mix assures us of gains when the market goes up , " says Tom . " And if the market drops , we 'll just grin and bear it until it recovers . " <p> To help you position your stock fund portfolio for maximum gains in 1992 , MONEY has assembled a diverse group of fund candidates for you to consider from three categories-small company , growth and total return . What follows is advice on putting together a portfolio based on your financial goals and risk tolerance . We start with the riskiest group , small-stock funds , and proceed to the category with the least risk , total return . For the 20 funds that experts predict will be the top performers in these groups , see the table on page 80 . SMALL COMPANY <p> Small-stock funds come in two varieties -- growth funds @ @ @ @ @ @ @ @ @ @ ahead at a 20% or better annual pace , and value funds , which seek shares of companies selling at a discount to their actual value . Though you probably want both types in your portfolio next year , tile value choices are the best buy right now . Reason : most value-oriented funds now own shares of depressed cyclical companies whose stocks could surge mightily in any 1992 economic pickup . " During the 12 months following the ' 82 recession , value small-stocks rose 42.5% , " says Claudia Mott , a small-stock specialist at Prudential Securities and a member of MONEY 'S 1992 investing roundtable ( page 106 ) . That far outstrips the 26.1% gain for growth-oriented small stocks . " The value funds offer another plus : if the market takes its customary pre-election dive , these choices should hold up better than their growth-oriented counterparts because the stocks they own already sell at lower values . <p> One value fund that could shine in ' 92 is Pennsylvania Mutual . Managed by Chuck Royce , 52 , this $700 million small-capper seeks hidden gems in @ @ @ @ @ @ @ @ @ @ of its doldrums next year , Royce has loaded up on economically sensitive stocks , such as Florida East Coast Industries , a $170 million ( 1.990 revenues ) railroad and real estate company well positioned to benefit from a recovery . Although Pennsylvania Mutual has lagged recently -- gaining only 36.7% , vs. 55.9% for the average small-stock fund over the past year -- it has exploded out of past recessions . In the first year after the 1981-82 recession , it was up 40.5% , compared with 21.4% for the average stock fund . <p> For a value fund that looks for big returns from the tiniest of stocks , Susan Pevear , an analyst at United Mutual Fund Selector ( 101 Prescott St. , Wellesley Hills , Mass. 02181 ; $125 a year ) recommends $125 million Babson Enterprise . The fund 's 45-year-old portfolio manager , Peter Schliemann , favors companies with strong commercial niches and market capitalizations of $100 million or less . Like Royce , he seeks comatose cyclicals that will awaken in a rebound . His largest holdings include Gottschalks , a $290 million @ @ @ @ @ @ @ @ @ @ California communities , and $128 million Jason Inc. , a Milwaukee manufacturer that dominates the market for padding used in auto interiors . <p> Over the longer term , however , funds that home in on small companies whose earnings are bounding ahead at a 20% annual rate or better should provide the maximum capital appreciation , So if stock prices slide as expected in early ' 92 , you should consider that an ideal time to buy growth-oriented small funds . One oft-cited growth candidate is $55 million Montgomery Small Cap Fund . Managed by Stuart Roberts , 36 , this 18-month-old fund mainly invests in firms with market capitalizations of $100 million to $600 million . " I buy the companies that are n't followed by Wall Street , " says Roberts . " So I get them at a better price than household-name stocks . " Among the little-known companies the fund holds are Thorn Apple Valley , an $817 million pork processor whose profits are rising 20% a year . If you want to get into this high-flying fund -- it 's up an awesome 114.9% over @ @ @ @ @ @ @ @ @ @ Montgomery from getting too unwieldy to invest : in pipsqueak stocks , Roberts plans to close the fund when it reaches $100 million in assets . <p> You can capture the benefits of small stocks with a smidgen more safety by opting for a small growth fund that throws some large stocks into the mix . One fund that employs such a double-barreled strategy , says Ken Weber , editor of Weber 's Fund Advisor ( P.O. Box 3490 , New Hyde Park , N.Y . 11040 ; $135 a year ) , is $173 million Sit New Beginning Growth . Although 47-year-old portfolio manager Douglas Jones keeps roughly 25% of the fund 's assets in hot sectors such as health care , his hunt for big gains sometimes leads to undervalued large-company -- and even foreign-shares . For example , Jones recently snapped up Dresdner , Germany 's second largest bank , which was selling at a 5% discount to its asset value . LARGE COMPANY <p> While most forecasters expect the returns on blue chips to trail those of pint-size stocks by a third or so next year , @ @ @ @ @ @ @ @ @ @ large companies . In fact , to lock in dependable long-term returns of 10% a year or so , most investment advisers recommend keeping at least 50% of your equity holdings in large stocks or the funds that invest in them . Another advantage : these funds are typically 15% more stable than small-cap choices . <p> Jamie and Susan Macartney of Lakewood , Colo. , whose photo appears on page 77 , have built such a core equity fund portfolio for their retirement money and a college savings fund for their three Children , Rebekah , 8 , Kathryn , 5 , and Bridget , 2 . Over the past two years they have accumulated $28,000 in an assortment of large-stock funds . Among their selections have been $2.6 billion Janus , whose portfolio manager , James Craig , 35 , invests in blue chips with strong earnings such as the $8 billion drug company Merck , and Gabelli Asset , whose $483 million portfolio currently owns shares of seemingly undervalued telecommunications companies such as GTE and AT &T.; The Macartneys ' big-cap growth strategy is already paying off . @ @ @ @ @ @ @ @ @ @ two years ago , " says Jamie , 31 . " And we 're hoping for gains of 12% or better each year over the next few years . " <p> If you 're willing to take on a tad more risk , consider a fund that spices up its large-company holdings with zesty small stocks . One such fund recommended by Norman Fosback , editor of Mutual Fund Forecaster ( 3471 N. Federal Hwy. , Fort Lauderdale , Fla. 33306 ; $100 a year ) , is Fidelity Growth Company . Fund manager Robert Stansky , 35 , favors companies with sales that are increasing by 10% annually . More than 50% of the $1.2 billion portfolio is held in stocks with market capitalizations of $1 billion or more such as Wal-Mart and the drug company Pfizer . But Stansky also snaps up fast-growing small companies , such as $379 million Continental Medical Systems , a Mechanicsburg , Pa. firm that provides patient-rehabilitation services nationwide . TOTAL RETURN <p> For extra portfolio ballast , investment advisers recommend placing 20% or more of your equity money in total-return funds , which @ @ @ @ @ @ @ @ @ @ , bonds . Though these less explosive funds are n't expected to match the potential 10% to 15% gains of growth stocks over the next year , their combination of steady dividends and capital appreciation should give you average returns of at least 8% a year over the next few years . To build the total-return section of your portfolio , seek out growth and income , equity income and balanced funds . <p> If you want capital growth and just a dab of income , consider CGM Mutual , a $360 million balanced fund yielding 3.4% . Red-hot manager Ken Heebner , 51 ( profiled in MONEY 'S December issue ) , recently poured more than half of its portfolio into recession-resistant blue chips , including Philip Morris . But Heebner , who trades stocks at twice the rate of the average fund manager , plans to shift quickly into cyclicals if the economy shows signs of strength . Heebner 's aggressive strategy of darting in and out of various sectors of the market makes CGM Mutual 35% riskier than the typical balanced fund . Over the past 10 years @ @ @ @ @ @ @ @ @ @ 17.7% annual returns for CGM Mutual 's more than 30,000 shareholders . <p> For total-return funds that reduce risk by tilting their mix more heavily toward income , fund experts suggest two superb choices . One is $220 million Lindner Dividend , whose portfolio of preferred shares and high-yield bonds currently pays a hefty 8.3% yield . The other is Pax World , a fund that has not had a losing year since 1974 . Manager Anthony Brown , 57 , runs this $248 million fund according to what he regards as socially responsible principles , buying only companies that produce life-enhancing products and services . Anticipating a possible market correction of 15% , or so in early ' 92 , Brown has cut his stock allocation to 47% from his usual 70% and has loaded up on secure dividend payers such as Equitable Resources , a $650 million Pittsburgh gas utility . The fund 's bond holdings -- roughly 53% of its portfolio -- are strictly top-rated government agency issues with average maturities of less than four years . Says Brown : " We stick to relatively short maturities to @ @ @ @ @ @ @ @ @ @ mutual fund investors , that 's a winning strategy in any year . YOUR SMARTEST 401(K) MOVES NOW <p> To score the highest possible return in your company 's 401(k) retirement savings program next year , position your portfolio for growth . Specifically , you should consider adding to your 401(k) mix small- and large-company stock growth funds like those described in the accompanying story . To determine just how much of your retirement plan you should devote to such investments , try this rule of thumb : subtract your age from 100 and allocate at least that percentage of your holdings to stocks . So if you 're 25 years old , you would keep 75% of your account in equities . <p> If you 're like most 401(k) participants , however , you 're probably low on stocks right now . According to Greenwich Associates , a company-benefits consulting firm , some 60% of the $290 billion in 401 ( k ) s is held in fixed-income accounts such as bond funds or the guaranteed investment contracts ( GICs ) issued by insurance companies . Fact is , these @ @ @ @ @ @ @ @ @ @ equity investments . <p> As you fine-tune your account , keep in mind that financial planners caution against too much 401(k) tinkering . In your retirement plan , after all , your first concern should be assuring steady growth , not outsmarting the market . Still , if your employer 's plan gives you the flexibility to switch in and out of various funds monthly or even more frequently , you might use any stock market corrections as opportunities to move more of your retirement money into equity investments at bargain prices . But if your plan , like most , strictly limits switching to , say , once every quarter , you 're better off picking an allocation that makes sense for you and sticking with it through market ups and downs . Other tips for ' 92 and beyond : <p> Coordinate your 401(k) with your overall portfolio . " Too many people consider their 401(k) holdings in isolation , " says financial planner David Bugen of Individual Asset Planning in Morristown , N.J. " As a result , they can become dangerously overweighted in some assets . " @ @ @ @ @ @ @ @ @ @ stocks , bonds or cash , be sure you factor in both your 401 ( k ) and your nonretirement holdings to achieve your overall allocation mix . <p> Double-check the safety of your GIC . The lure of a fixed interest rate and guaranteed repayment of principal have made GICs the most popular 401 ( k ) choice by far , drawing $0.50 out of each dollar invested . But the failure of insurers such as Executive Life has shaken the faith in these guarantees . If no more than 20% of your GIC is invested with a single insurance company , and no insurer receives less than an AA or equivalent rating from credit watchdogs such as Standard &; Poor 's , you probably do n't need to worry . Otherwise , consider moving some of your money to a money-market account or short-term bond fund if your plan offers one . <p> Lighten up on your own company 's stock . A worrisome 30% of all 401(k) assets are held in employer stock . Warns Bugen : " A reversal in your company 's fortunes could wipe you @ @ @ @ @ @ @ @ @ @ tells you title company 's future is , you should devote no more than 10% of your holdings to company stock . -- P.W . <p> TWENTY STOCK FUNDS THAT DESERVE YOUR VOTE IN ' 92 <p> These 20 equity funds -- ranked within their categories by 12-month total return -- are leading candidates to deliver superior returns next year . Keep in mind , though , that many analysts expect the stock market to fall 10% or more in the first half of ' 92 before rebounding later in the year . Still , if you are willing to ride out some early-year uncertainty , these funds figure to end up gaining 10% to 15% over the next 12 months . TABLE <p> PHOTO ( COLOR ) : Going for steady growth , Jamie and Susan Macartney of Lakewood , Colo. , shown with daughters Bubekah , 8 , and Bridget , 2 , stashed $28,000 of retirement and college savings in largo-company stock funds such as Janus and Gabelli Asset . Says Jamie , " We want stable growth for this year and the long term . " <p> @ @ @ @ @ @ @ @ @ @ their $40,000 portfolio in small-company growth funds such as Twentieth Century 's Ultra and Vista , Tom Holstein , 30 , and wife Teresa , 26 , of St. Louis hope to a more 15% gains next year , To offset small stocks volatility , however , the Holsteins keep the rest of their money in soothing mix of big-company stock funds , bonds and cash . <p> by PENELOPE WANG <p> HOW MUTUAL FUND COMPANIES GET BROKERS TO PUSH THEIR PRODUCTS <p> So your broker has been urging you to buy the Bound-for-Glory growth fund , which just got a nice write-up in the brokerage 's in-house newsletter . You 're hesitant , but you figure , what the heck , the firm has no reason to throw its weight behind a fund unless it 's the best available , right ? Well ... <p> Every brokerage firm maintains a list of funds that its brokers are permitted to sell . Every entry on the list must pass the brokerage 's " due diligence " review of the manager 's performance and the sponsor 's financial stability , among other @ @ @ @ @ @ @ @ @ @ its products to stand out from others on the list -- at least in the minds of brokers-it may also have to pass tests of a more mercenary sort . <p> Here 's how it works at Florida regional brokerage Raymond James : <p> Every year the firm invites about 10 of what it considers the best mutual fund groups in the business to join the firm 's " focus " program . Funds can choose either of two levels of sponsorship : platinum , for $40,000 a year , and gold , for $2S,000 . In return for their promotional dollars , " participating fund groups are highlighted during sales meetings and are allowed to submit articles for our in-house magazine , " says vice president of marketing Lawrence Silver . The fund groups also get to push their funds through in-house sales contests -- as long as they foot the bill for the prizes . Recent awards included a four-day Caribbean cruise and a week in San Francisco for top salespeople , their spouses and Raymond James ' brass . <p> Now there is nothing new about fund groups @ @ @ @ @ @ @ @ @ @ the industry has raised the amount of money that fund sponsors can spend this way dramatically . And though we have no evidence that brokerages are taking cash to push lousy funds , it is clear that they increasingly reserve easy access to their top salespeople for sponsors who pay -- usually in arrangements that customers never hear of . <p> So do n't be shy about asking if a recommended fund is offering any inducement besides the load . If a broker touts a single fund , request the names of two or three others that might also match your goals . Then have the broker explain why his or her original suggestion is best . <p> ILLUSTRATION <p> By John Sims <p> 
##2018877 Section : STOCKS <p> As a group , blue chips are not expected to deliver the most sizzling gains of 1992 . Analysts say that honor will go to smaller , more volatile stocks , which could climb an average of 15% or more . ( For the safest ways to invest in such shares , see the mutual fund story on page 76 . ) But there is an elite group of larger-size issues that may match or even exceed the performance of their smaller brethren -- and hold up much better during the temporary market setbacks that could rock the market early next year . Their businesses are diverse -- ranging from pharmaceuticals to toxic-waste disposal . But they share these winning qualities : a leadership position in a profitable business ; a record of consistent earnings growth ; and , above all , superior prospects for future gains . <p> " In this no-growth economy , true growth stocks are a rare commodity , making the top-tier American growth companies especially attractive now , " says Michael Metz , chief investment strategist at the New @ @ @ @ @ @ @ @ @ @ member of MONEY 'S 1992 investing roundtable ( page 106 ) . Adds Cathy Dudley , co-manager of the Phoenix Growth Fund : " The market next year will put a premium on predictable , solid earnings growth . " <p> Just as important , these established-growth stocks should escape the worst of the occasional nerve-rattling price tumbles that investors can expect along the way to higher values in ' 92 . During the rout that rocked the market in mid-November , for example , small biotechnology firms with hot products under development but little or no current profits fell 15% to 25% or more . In contrast , the average big-growth stock lost 3% to 5% . <p> To help you pick the most promising bulletproof issues for 1992 , we 've ranked the 50 best-performing big growth stocks of the past five years in a table on page 88 . Use the list as the starting point in your stock search , focusing on those companies whose future rate of growth , signaled by stable or accelerating earnings projections for the next few years , seems as exemplary as @ @ @ @ @ @ @ @ @ @ companies has allowed retired Houston accountant Ray Spannuth , 65 , pictured on page 85 , to more than double the value of his portfolio since 1985 . Better yet , with sturdy holdings such as Corning , Philip Morris , J.P . Morgan and Coca-Cola , Spannuth has never had a losing year . <p> With stocks up 28% since October 1990 , figuring out a fair price for the issues on your buy list is also crucial . One way to ensure you get a good deal : favor companies whose price/ earnings ratios are roughly equal to or below their projected earnings growth rates . Consider stocks that pass this fair-value test now as prime candidates to buy immediately . Then use any pullback in prices to pick up the more expensive issues on your list . <p> The payoff in this approach can be great . Just ask Miami 's Tom Gebing , 41 , a commercial real estate salesman , and his wile Jean , 36 , a dietitian , pictured above . Describing their strategy , Tom notes , " I took for growth companies @ @ @ @ @ @ @ @ @ @ when I can buy the shares cheaply . " The result ? An impressive average return of 15% a year since 1984 . <p> What follows is a rundown of some of the issues that could power your portfolio to similar double-digit returns next year . We start with the stocks that are attractively priced now , then discuss those that would be more tempting after a market dip . BUY NOW <p> The surest way to make money in ' 92 , many investment advisers believe , is to invest in large pharmaceutical companies that boast stable profits from widely used medications and that have great future prospects from drugs under development . The industry , analysts point out , is largely immune to the vicissitudes of the economy ; most people go to their doctors when necessary and fill their prescriptions in good times and bad . And the stocks are reasonably priced , despite an average 31% gain this year . The typical drug stock now sells at roughly 18 times estimated 1992 earnings ; that 's high , but in line with the industry 's projected growth @ @ @ @ @ @ @ @ @ @ an investment newsletter published by Standard &; Poor 's , is particularly keen on Merck ( recently traded on the New York Stock Exchange at $145 ) , the industry leader with estimated 1991 revenues of $8.7 billion . Sales of its Vasotec , the most widely prescribed cardiovascular drug in the world , should advance 20% to 25% this year to $1.8 billion , while two recently introduced cholesterol-lowering drugs are expected to bring in $1.5 billion , up 40% from last year . Combined with new medications near regulatory approval , including the first treatment for prostate enlargement , these drugs should spur an 18% to 20% rise in Merck 's profits next year , a growth rate roughly equal to the stock 's multiple . <p> Also winning raves on Wall Street are Pfizer ( NYSE , $67.25 ) and Bristol-Myers Squibb ( NYSE , $81.25 ) . For $7.2 billion Pfizer , recently trading at a P/E of 21 , promising new drugs for chronic ailments ranging from depression to diabetes should keep profits bubbling at a 20%-plus rate over the next three to five years , @ @ @ @ @ @ @ @ @ @ a pharmaceutical research group in New York City . Equally attractive are the shares of Bristol-Myers , which has been trading at 17 times its estimated 1992 earnings . The $11.8 billion company could see earnings grow by 18% to 20% annually through 1995 as DDI , a new antiviral drug for the treatment of AIDS , and other innovative medications are launched , says analyst Ronald Nordmann of Paine Webber . <p> Another group to consider for your portfolio now : consumer-products companies , which typically prosper in good times and bad . The premier pick , says Gene Walden , author of The 100 Best Stocks to Own in America ( Dearborn Financial Publishing , $22.95 ) , is Philip Morris ( NYSE , $67.75 ) , which should end 1991 with its 37th consecutive year of record profits . Strong demand for its Kraft , Oscar Mayer and other brand-name foods , combined with rising sales of its cigarettes abroad , is boosting earnings growth from a 19.5% annual rate over the past 10 years to a 20% to 22% projected rate for the next five . Yet @ @ @ @ @ @ @ @ @ @ estimated 1992 earnings . <p> Brisk demand for soft drinks to quench our national thirst also defies any recessionary fizzling . That 's why S &P's; Kaufman favors PepsiCo ( NYSE , $28.75 ) . He sees earnings at the No. 2 soft drink maker advancing by 16.5% a year over the next five years . Yet the shares now sell at a multiple of just 16 , vs. 24 for chief rival Coke . Hugh Johnson , chief investment strategist at First Albany , recommends Huffy Corp . ( NYSE , $19 ) , the largest manufacturer of bicycles in the U.S. Resilient demand for bikes from otherwise downbeat consumers should keep profits riding along at a 14.5% annual clip through 1995 . The stock 's multiple , however , is only 12 . <p> Some strategists also suggest Waste Management ( NYSE , $35.25 ) , the $7.9 billion waste-disposal concern . The recession , coupled with a tax on revenue from out-of-state waste deposited in its Alabama and Louisiana landfills , has slowed earnings growth from the 27.5% average annual rate of the past five years to the @ @ @ @ @ @ @ @ @ @ the stock trading below that still-impressive growth rate , though , savvy investors should spy a bargain . Says Gene Walden : " With all the new environmental regulations being passed lately , there is no way this company is not going to make lots of money over the next 10 years . " BUY LATER <p> " If there is one group of stocks that I 'd like to buy cheaper , retailers are it , " says Tom Marsico , manager of the Janus Twenty fund . Topping his list are Wal-Mart ( NYSE , $47.25 ) , the nation 's most profitable retailer , and the Home Depot ( NYSE , $58.50 ) , the leader in home improvement stores . Both firms make the most of a simple premise : sell quality merchandise at consistently low prices . For Wal-Mart , the formula has led to average annual earnings gains of 36.5% over the past decade . Home Depot , meanwhile , has an impressive 10-year annual earnings growth rate of 65% . Then too , both retailers are expanding rapidly . That is expected to boost @ @ @ @ @ @ @ @ @ @ Home Depot 's by as much as 30% well into the ' 90s . <p> The catch , of course , is lofty prices . With Wal-Mart up an average of 45% a year and Home Depot gaining 68% annually over the past decade , both stocks now trade at P/Es well above their growth rates . But Marsico , who already owns both companies , intends to buy more shares of Wal-Mart if its price drops to $42 a share and load up on Home Depot below $50 . <p> Another high flier that would be a shrewd purchase if the market retreats is U.S. Surgical ( NYSE , $94 ) , says Nancy Dunnan , author of Dun &; Bradstreet Guide to Your Investments : 1992 ( HarperCollins , $30 ) . This $835 million firm sells 88% of the surgical clips and 80% of the internal staples used by surgeons to close incisions . With little competition in a field it pioneered , U.S. Surgical could post profit gains of 65% this year and 40% in 1992 before settling down to 30% to 35% annual increases through the @ @ @ @ @ @ @ @ @ @ the stock 's P/E , now 45 , in line with the company 's growth rate . <p> Potentially the most lucrative , but also the riskiest , stock for your buy list is Amgen ( over the counter , $56.75 ) . Despite the recent drubbing of biotechnology issues , this $520 million up-and-coming drugmaker trades at a P/E of 38 . That lofty multiple , plus investors ' continuing skittishness about biotech , suggests you might be better off buying the shares after the anticipated pre-election decline . <p> The long-term prospects for Amgen , though , are unparalleled . Unlike its younger biotech cousins , the company already has two blockbuster products on the market-Neupogen , used by chemotherapy patients , and Epogen , used to treat chronic kidney failure . It also has several others in trials . Its estimated long-term growth rate : 35% to 50% a year . If Amgen 's stock price matches that growth rate , even a small position -- say , less than 10% of the money you keep in equities -- could give your overall portfolio market-beating returns long after @ @ @ @ @ @ @ @ @ @ Retired accountant Ray Spannuth , 65 , keeps 80% of his 8128,000 retirement portfolio in big-growth stocks , the rest in bonds and cash . The Houston resident , who has earned 15% a year on his holdings since 1985 , says , " For the returns I need to beat inflation , blue chips are the safest way to go . " <p> PHOTO ( COLOR ) : Since they started investing in 1984 , Miami commercial real estate salesman Tom Gebing , 41 , and his wife Jean , 36 , a dietitian , have earned an average of 15% a year with top-quality growth stocks such as Wal-Mart and Home Depot . " You do n't have to be a brain surgeon to pick stocks , " says Tom . " You just have to do your homework . " <p> by DIANE HARRIS <p> THE MONEY 50 : BIG STOCKS WITH BIG GAINS <p> To help you find solid stocks that can outpace the market next year , MONEY offers this list of top-performing blue chips and large growth companies . We began with a ranking of @ @ @ @ @ @ @ @ @ @ &; Co. , a New York City financial analysis firm . Stern Stewart 's exclusive formula compares the total market value of a company 's shares with the total amount of equity the firm has ever raised from its shareholders . In short , it measures how much value -- if any -- a company 's management has been able to add to shareholders ' investments , and how much this added value has grown over time . <p> Stern Stewart reviewed the past five years , using the most recent data available , to produce a list of 100 companies with the largest increases in added value measured in dollar terms ; that approach favored multibillion-dollar blue chips . Then , in fairness to the smaller companies , MONEY ranked those stocks a second time according to their increases in added value in percentage terms . The SO top performers are listed at right . <p> Some stocks regarded as blue chips did n't even pass the first screen . The total value of GM 's outstanding stock , for instance , is $19 billion less than shareholders have put @ @ @ @ @ @ @ @ @ @ . Philip Morris is now worth about $50 billion more than shareholders ' total investments , and Wal-Mart is ahead by $48 billion . Not surprisingly , some growth stocks beat out even the best-performing blue chips on a percentage basis . Amgen , for example , has posted a stunning 14,783% gain because five years ago the company 's invested capital was tiny -- only $43 million , compared with $14 . G billion for Philip Morris at that time and $2.4 billion for Wal-Mart . <p> In general , industries whose sales have held up during the recent recession got good grades . Food and consumer-products companies , particularly those selling inexpensive everday items , accounted for 15 of the 50 stocks . Another 14 were in health care , a field virtually immune to the general economic downturn . <p> Of course , past performance is n't the only factor investors should consider . Two of the S0 arc fast-growing but heavily indebted firms -- LIN Broadcasting and Turner Broadcasting . Of the rest , one star indicates that a company 's finances are investment grade ; two @ @ @ @ @ @ @ @ @ @ stars , the strongest . Conservative investors may also prefer shares with dividend yields of at least 3% . <p> Most important , though , is whether a stock is overpriced right now or a bargain . As the accompanying story explains , one reliable test is to compare a company 's price/earnings ratio with its prospects for profit growth over the next five years . Ideally , a bargain stock 's P/E ratio will be less than its growth rate . In this table , P/Es reflect earnings estimated for 1992 , while growth rates are based on a consensus of analysts ' projections for the next five years . If a company you like seems pricey , do n't forget about it altogether -- add it to your buy list . You may be able to pick it up cheap if stocks skid temporarily next year . TABLE <p> By Jersey Gilbert <p> 
##2018878 Section : INCOME INVESTMENTS <p> Even though 1992 is shaping up as the year of low yields , investors need not settle for paltry returns , such as today 's meager 5% on one-year bank certificates of deposit . Instead , you can get a solid 7% or more by holding one or both of the income investments that analysts believe will provide the best results with the least risk in 1992 : intermediate-term Treasury notes -- those with maturities of four to 10 years -- and t he shares of financially strong electric utilities . Intermediate-term Treasuries now yield as much as 7.4% , while analysts expect select electric utilities to deliver total returns -- dividends plus rises in share prices -- of 9% to 10% or better in 1992 . Here 's what makes both top choices : <p> With long-term interest rates not likely to fall much further in 1992 , the case for intermediate-term Treasuries is especially strong today . Ten-year Treasury notes now yield 7.4% , just six-tenths of a percentage point less than their 30-year cousins ; yet the intermediates are only @ @ @ @ @ @ @ @ @ @ than long-term bonds do when interest rates rise . A one-percentage-point hike in long-term rates , for example , would push down the prices of 10-year notes by 6.7% , vs. 10.5% for 30-year issues . Historical performance shows how this relative stability gives intermediates the edge : according to Edward Martin , fixed-income portfolio manager with David L. Babson &; Co. in Boston , intermediates have achieved average annual total returns of 8.3% over the past 25 years , compared with 6.9% for long-term Treasuries . <p> Shares of financially strong utility companies , which currently yield roughly 4.4% to 7.8% , offer a crucial advantage over bonds : the companies regularly raise dividends , keeping them ahead of inflation . Analysts forecast that the dividends of the 20 utilities in the table on page 95 will grow by 1.5% to 5% annually over the next five years or so . The higher payouts are likely to boost the companies ' share prices at similar rates , giving investors annual total returns of 9% or more for the period . Meanwhile , those payouts cushion power-company stocks when the market @ @ @ @ @ @ @ @ @ @ , the S &P; 500 dropped by 3.7% , while utilities declined by a relatively mild 2.5% . <p> How you allocate your income stake between these two investments depends on factors such as your in vestment horizon . If you 're still decades away from retirement , for example , you might load up on utility shares , which are somewhat more volatile than bonds but offer the potential for greater long-term returns . Older investors whose top priority is a steady stream of current income might prefer Treasuries and other fixed-income securities . <p> A mix of about 60% bonds and 40% utilities has worked well for Bob Yulsman , 59 , and his wife Esther , 55 , of Cheltenham , Pa. for the past six years . The Yulsmans own about $175,000 of top-quality municipal bonds paying an average of 4.8% , and $175,000 of high-rated corporates paying about 8% . The couple also have $250,000 spread among a dozen utility stocks yielding about 7% overall ; as the utilities have boosted their dividends by an average of 7.5% a year , the value of the Yulsmans @ @ @ @ @ @ @ @ @ @ We 're conservative investors , " says Bob , a sales representative for several manufacturers . " Utility stocks allow us to add some growth potential to our portfolio without taking big risks . " <p> The most promising investments for a safe income portfolio are described below , along with guidance on low-cost ways to buy them . BONDS <p> Right now , 10-year Treasury notes offer the best value , according to Hugh Johnson , chief investment officer at the brokerage First Albany in Albany , N.Y . They can be bought for as little as $1,000 and yield 7.4% -- just four tenths of a percentage point less than high-quality 10-year corporate bonds do . Actually , if you live in a high-tax state , you may end up with more money in your pocket with Treasury notes than with corporates . The reason : interest on Treasuries is exempt from state and local taxes , a feature that can add as much as one percentage point to your real return in such high-tax states as Massachusetts and New York . Moreover , Treasury securities are immune to @ @ @ @ @ @ @ @ @ @ principal and interest ( but not their prices , which fluctuate with interest rates ) . <p> When buying individual bonds or notes , you might consider a technique called laddering -- acquiring several issues with different maturity dates . For example , with $4,000 you can purchase notes with maturities of four , five , seven and 10 years , giving you an average maturity of 6.5 years and a yield of 7% . Then , if rates rise , you can reinvest money at higher yields as your earlier notes mature . And if rates decline , you will have locked in higher rates on at least a portion of your holdings . <p> To avoid commissions when buying Treasuries , you can deal directly with the Federal Reserve . ( For information , call 202-287-4113 . ) By contrast , to buy corporate bonds you must go through a broker and pay a commission of 0.5% to 3.5% . Of course , you may find the paperwork savings worth the expense of buying Treasuries through a broker or a bank , which generally charges $35 to $100 . @ @ @ @ @ @ @ @ @ @ only $1.17 in brokerage fees over the past three years to invest $230,000 in intermediate- and long-term Treasuries now yielding an average of about 7.8% . He formerly invested through a government bond mutual fund , until he wearied of paying the annual management fee -- 0.67% of his account balance . By owning Treasuries outright , he saves the roughly $1,500 he would be paying each year in fund expenses . " There 's no credit risk , and I plan to hold the Treasuries for a long time , " he says . " Why should I pay a mutual fund to manage that money ? " <p> If you have $3,000 or less to invest and believe you might sell your holdings within a year or two , however , you would be wise to buy Treasuries through a mutual fund , since the fund 's annual fees would probably add up to less than the commissions you would pay a broker to unload individual Treasuries . An intermediate . term Treasury fund keeps the average maturity of its portfolio under 10 years ; you should look for @ @ @ @ @ @ @ @ @ @ You 'll find every fund 's expense ratio in its prospectus ; in general , you will need to call the fund to learn its portfolio 's current average maturity . ) Don Phillips , publisher of Morning-star Mutual Funds in Chicago , recommends no-load Benham Treasury Note Trust ( 5.9% yield ; 0.75% expense ratio ; 800-472-3389 ) . <p> High-quality intermediate-term corporate bonds yielding as much as 8% are a sensible choice if you live in a state with low or no income tax and thus can not benefit from the state tax exemption on income from Treasuries . Be aware , however , that corporate bonds carry special risks . For example , the likelihood that an issuer will redeem your bond before maturity has increased in recent years , because with rates falling , issuers do n't want to continue to pay high rates on old bonds . So they call them in for redemption as soon as possible , forcing bondholders to reinvest the proceeds at lower rates . And even top-rated corporate issues are subject to credit downgrades . <p> Since both risks are difficult @ @ @ @ @ @ @ @ @ @ be better off buying corporates through mutual funds that hold diversified portfolios . Phillips recommends two intermediate-term corporate funds : Neuberger &; Berman Limited Maturity Bond ( 6.3% yield ; 800-877-9700 ) and Babson Bond Trust Port . folio L ( 8.4% yield ; 800-422-2766 ) . <p> Investors with taxable income exceeding $34,000 a year if married or $20,350 if single might consider high-quality intermediate-term municipal bonds . Sold by brokers for transaction costs of about 0.75% of your investment , munis rated A or better recently yielded as much as 5.7% , equivalent to a taxable 7.9% for investors in the 28% bracket and 8.3% for those in the 31% bracket . <p> As a rule , you need at least $25,000 to assemble a diversified portfolio of five or more municipal issues to cushion you against losses from downgrades or defaults . You can eliminate that worry by sticking to pre-refunded municipal bonds , which are backed by Treasuries held in escrow , eliminating the default risk . <p> Most pre-refunded issues trade at higher prices than their value at maturity , which means that investors will suffer @ @ @ @ @ @ @ @ @ @ redeemed . But the bonds ' high interest payments , typically 8% to 12% , will compensate holders for such losses and still provide effective yields to maturity of about 5.3% . That return -- equivalent to taxable yields of 7.4% for investors in the 28% bracket and 7.7% for those in the 31% bracket -- makes pre-refunded munis " terrific buys at their current prices , " says Christine Carter Lynch , editor of the Lynch Municipal Bond Advisory in Santa Fe . She recommends two intermediate-term pre-refunded bonds , both with effective yields of about 5.3% : Piedmont Municipal Power Agency South Carolina 9.7s , pre-refunded to mature at 103 in 1996 , and Austin Texas Utility Revenue 10.25s , pre-refunded to mature at 102 in 1995 . <p> Top-bracket investors with less than $5,000 to invest might consider high-quality intermediate-term municipal bond funds , which yield about 5.6% , equivalent to taxable payouts of 7.8% for investors in the 28% bracket ( 8.1% in the 31% bracket ) . Such investors will find that on an after-tax basis , a fund with 75% or more of its portfolio @ @ @ @ @ @ @ @ @ @ ratio of less than 0.75% will beat Treasury yields by half a percentage point or more at only modest additional risk . Ralph Norton , editor of the Bond Fund Advisor in Boston , recommends two no-loads : Vanguard Municipal Intermediate Term ( 6% yield ; 0.26% expense ratio ; 800-662-7447 ) and Dreyfus Intermediate Municipal Bond ( 6% yield ; 0.66% expense ratio ; 800-645-6561 ) . UTILITY STOCKS <p> Thanks to the stabilizing force of their high dividends , utility stocks have tended to be only a little more volatile than long-term bonds . Yet over the past 30 years , Standard &; Poor 's index of utilities ( mainly electric ) has delivered annual returns of 11.1% , vs. 6.6% for long-term Treasuries . The reason : while bonds pay a fixed rate of interest , utilities have raised their dividends by an average of 4% a year over those three decades . <p> Despite the general run-up in stock prices this year , many utility shares are still relatively inexpensive . In fact , this year through Nov. 15 , as stock buyers concentrated on growth issues @ @ @ @ @ @ @ @ @ @ only 1.6% , vs. 15.9% for the S &P; 500 . In addition , some analysts believe utilities will get a boost in 1992 as yield-hungry investors scoop them up . " Some people cashing in certificates of deposit will put that money into utility stocks , which will help that sector of the market , " says Michael Metz , the chief market analyst of Oppenheimer &; Cc ) . , who participated in the MONEY Roundtable ( see page 106 ) . <p> With $12,000 or more , you can assemble a diversified portfolio of four or five utility stocks while keeping brokerage commissions to 2% or less of your stake . ( Investors with less than $12,000 might instead select one of the mutual funds discussed below . ) For help in choosing the strongest utilities , consult the table opposite , which describes the 20 electric companies that have provided the greatest total returns to investors over the past five years and that also meet analysts ' criteria for financial strength . <p> In general , analysts advise investors to avoid a utility that yields more than @ @ @ @ @ @ @ @ @ @ : it can be a sign of a financially troubled company that may have to cut its dividend . " Prospects for dividend growth are much more important to long-term returns than a high current yield , " says Chuck Carlson , editor of Dow Theory Forecasts in Hammond , Ind . Research by the brokerage Paine Webber shows that 30 of the country 's 108 electric utilities have cut their payouts since 1984 . <p> In forecasting dividend growth , analysts take a careful look at a company 's payout ratio -- the percentage of its earnings that the company returns to investors in the form of dividends . Utilities with payout ratios of 85% or higher may find it difficult to maintain their dividends , let alone raise them ; by contrast , firms with ratios of 70% or less are often in a position to boost their dividends by as much as 5% a year . ( Our table gives payout ratios for the 20 companies listed ; you can obtain the data for other companies from the Value Line Investment Survey , available at most brokerages and @ @ @ @ @ @ @ @ @ @ investors to consider only firms with credit ratings of A or higher from such agencies as Moody 's and Standard &; Poor 's . They warn that a few financially weak utilities may have to cut their dividends as they build new generating plants to meet both rising demand for electricity and increasingly strict environmental regulations . Finally , the analysts favor utilities in states like Florida , Indiana and Wisconsin , where regulators have a history of routinely granting rate increases , over companies in states with tougher regulators , such as Arizona , Massachusetts and New York . <p> In choosing utility stocks , do n't lose sight of your investment objectives . For example , investors who are a decade or more from retirement might look for utilities with projected annual dividend growth rates of 4% to 5% , even though their yields may be only 5% to 6% . By contrast , older investors whose primary goal is current income might prefer high-quality utilities with higher yields of 6% to 7% , despite the companies ' annual dividend growth of only 3% or so . <p> If @ @ @ @ @ @ @ @ @ @ n't want to pick and monitor individual stocks -- utility mutual funds are a sound choice . For investors seeking steady growth and modest yields , newsletter publisher Phillips recommends no-load Fidelity Utilities Income Fund ( 12-month yield : 5.2% ; 800-544-8888 ) . He also suggests that retired investors might consider no-load Stratton Monthly Dividend Shares ( 12-month yield : 8.4% ; 800634-5726 ) , which recently held 50% of its assets in utilities and , for additional diversification , the remainder in real estate investment trusts and other stocks with above-average dividend yields . TWENTY SAFE UTILITIES THAT PAY AS MUCH AS 7.8% <p> Analysts expect these 20 utilities , listed in order of total return for the past five years , to provide both reliable dividend growth and capital gains over the next five years . To find them , MONEY screened 112 of the largest publicly traded power companies , with the help of G.R. Pugh , a Cranford , N.J. firm . Each has paid its dividend faithfully for at least six years and has increased it at least once since January 1987 . We dropped @ @ @ @ @ @ @ @ @ @ those paying out more than 85% of their after-tax earnings in dividends -- because such companies run a greater risk of being forced to cut their dividends . The companies below have ratings from Moody 's of A or better ( the top rating is Aaa ) . And all are expected to increase their revenues , in part because their relationship with regulators -- who determine rate increases -- is judged average ( 3 ) or better ( 4 or 5 ) by Merrill Lynch . -- Jersey Gilbert <p> TABLE <p> PHOTO ( COLOR ) : This year , Bob and Esther Yulsman of Cheltenham , Pa. earned an effective yield of about 7.3% on their $600,000 portfolio of corporate and municipal bonds and utilities , Moreover , in the past six years , the value of their utility shares has risen an average of about 15% annually . <p> PHOTO ( COLOR ) : Art collector Eric Green , 73 , of Miami has sharpened his eye for value . Until 1988 , he had $80,000 in a government-bond mutual fund , where he paid about $400 in @ @ @ @ @ @ @ @ @ @ Treasuries outright . His total brokerage commissions : $117 . <p> by CLINT WILLIS <p> 
##2018879 Section : CASH <p> All year you have watched the yields on cash investments dwindle . With the average rates on Treasury bills , short-term bank certificates of deposit and money-market funds now be low 5% , and even short-term bond funds at a measly 6.2% , you 're right to be getting restless . And , unfortunately , there 's not much relief in sight either . " Political pressure will remain on the Fed to keep interest rates down until after the elections , " says market expert James Stack . " While an uptrend could come earlier , there is little prospect of a significant boost in cash yields before next fall . " ( Stack , the editor of the InvesTech Market Analyst , participated in MONEY 'S investment roundtable ; see page 106 . ) <p> Does this mean you should experiment with new and untested ways to raise your returns in 19927 Emphatically , no . Safety must come first , especially in troubled times , for both your savings and the investment money you park temporarily in cash . On the @ @ @ @ @ @ @ @ @ @ your money in a low-yielding CD , without assuming extra risk . Indeed , you will want to earn the best return possible on your cash , to keep up with inflation and perhaps even to turn a small profit . Just always keep the money liquid and fully secure so you can tap it in an emergency or capitalize on promising investments when they appear . The table at right lists top choices that meet all three of those criteria : safety , liquidity and the best possible yield . Venture beyond those secure harbors at your peril . Warns New York City market strategist Ray DeVoe : " More money has been lost reaching for yield than in all the stock scams in history . " <p> One more thought : today 's yields are n't all that low . After inflation , now less than 3% , they 're producing more real income than the 7%-plus figures of a year ago . So stash your cash in one or more of the following repositories , listed in ascending order of risk . Also , stay with our picks @ @ @ @ @ @ @ @ @ @ little as possible in ' 92 . <p> Treasury bills . If ironclad safety is what you want and you have the $10,000 ante , then T-bills may be for you . They yield only about 4.8% but offer two pluses : no investment is more secure , because the government backs bills , and earnings are exempt from state and local taxes -- a savings worth as much as 0.7 of a percentage point in extra yield if you live in a tax hell like California , Massachusetts or New York . A key consideration is maturity : three months , six months or one year . Today , since yields differ by just a few tenths of a point , you might choose the shorter bills for extra liquidity . To avoid commissions , buy directly from the Federal Reserve ( call 202-287-4113 for information ) . <p> Certificates of deposit . Federally guaranteed CDs are almost as safe as T-bills , yet some yield more than half a percentage point more . If you stick with maturities of a year or less , you 'll be liquid enough @ @ @ @ @ @ @ @ @ @ much as a point on six-month CDs , so shop around , but buy from an institution like the two in our table ( more are listed in Scorecard on page 15 ) . Both offer nearly 6% and top safety grades . <p> Money-market funds . Some of today 's highest-yielding money funds are also the most secure . These " two-fers " are pure government money funds that hold nothing but Treasuries and other direct U.S. Government obligations and offer yields as high as 5.8% , just a shade less than the 6.2% on the best-performing nongovernment money fund . Better yet , depending on where you live , your actual yield from a government fund may be as much as 0.8 of a point higher , because interest paid on direct government obligations is exempt from most state and local taxes . ( Not all funds labeled " government " hold direct federal obligations , and tax rules vary from state to state . Check with a fund representative before investing . ) <p> Tax-exempt money funds . If you 're married and your taxable income is more @ @ @ @ @ @ @ @ @ @ can earn a taxable-equivalent 6.8% from a high-yielding tax-free . But such a yield often comes from high-risk holdings . Invest only in large , diversified funds from well-established sponsors -- such as the two listed in the table on the previous page -- that still offer taxable-equivalent yields over 6% . <p> Short-term bond funds . The best of these funds pay yields as high as 8.4% , but they carry a bit more risk than money funds because the value of bonds fluctuates with interest rates . This translates into share-price gains or losses . A bond fund also comes with the worry that issuers might default on securities in the fund 's portfolio . But the risk is minimal when you protect yourself with a well-diversified fund that sticks mainly to bonds graded double A or better by Moody 's or Standard &; Poor 's . ( Information on a fund 's holdings is in its prospectus and is available by phone from a fund rep . ) <p> Short-term bond funds may hold U.S. Government , municipal or corporate debt instruments that mature in one to five @ @ @ @ @ @ @ @ @ @ federal tax -- worth a two-point bonus on a 5.1% pretax yield to someone in the 28% bracket . <p> ARM funds . These comparatively new instruments invest primarily in government-backed adjustable-rate mortgages , the interest on which is reset periodically to reflect changes in short-term rates ( see Fund Watch , MONEY , December 1991 ) . These frequent adjustments make ARM funds far less subject to interest-rate risk than are other mortgage-backed funds . Indeed , according to Walter Frank , chief economist for newsletter publisher IBC/Donoghue , they may be a little more stable than most short-term bond funds . Still , most ARM funds are not a suitable place for your cash because heavy up-front loads consume most short-term yields . Only two ARM funds are load-free . Both are listed in our table . <p> Short-term global income funds . Of the three no-load funds of this type , Blanchard , whose yields have consistently topped 9.5% , is the only one sufficiently stable for your cash . ( There is an up-front fee of $75 , which amounts to a 2.5% load on the $3,000 @ @ @ @ @ @ @ @ @ @ high-quality , short-term government and corporate bonds overseas , where it can take advantage of high interest rates . It protects principal against the considerable risk of currency fluctuation with hedging techniques such as trading foreign-exchange futures . Still , this fund is not for everyone -- it 's at the outer limit of risk for a prudent cash investment . WHERE TO GET THE HIGHEST AND SAFEST YIELDS <p> The investments listed here pay significantly above the average for their categories . All are suitable for long-term savers as well as investors looking for a safe place to park cash temporarily until better investments turn up . The more you abhor risk , the more comfortable you 'll feel with the first three groupings . TABLE <p> by JOHN MANNERS <p> 
##2018950 Section : SPENDING <p> It looked like a flashback to the ' 50s as the pack of 24 classic beauties shot down the straightaway for the first of 10 noisy laps . At the wheel of his restored ' 57 Porsche , Don Sandy began dueling it out with the Alfas and Triumphs crowding the pavement , pushing to catch No. 626 , a slick silver Porsche Carrera that was already threatening to live up its nickname : the Silver Bullet . <p> Sandy tried to go for an opening . Whoa ! A ' 59 Porsche cut in front of him . No problem ; he Could handle going sideways . Nobody would run him off the track . These drivers were his comrades ; their rule was " race carefully . " Besides , their cars were too pretty to crash . <p> To the 30,000 spectators at the Laguna Seca Raceway , it looked and sounded like real racing . To a gung-ho competitor like Don Sandy , it even felt like real racing . But he and his fellow road jockeys were all amateur @ @ @ @ @ @ @ @ @ @ workaday Rolodex world -- chasing each other around the 2.2-mile track for fun and no profit . <p> There are no trophies or cash prizes for crossing the finish line first in this contest . At California 's Monterey Historic Automobile Races , driving to win is considered bad form , even dangerous . It 's the cars , not the drivers , that are the stars of this auto nostalgiafest , and most of them are too valuable and their owners too sensible to consider mere victory worth a $50,000 repair bill , let alone a hospital visit . " I 'm not here to win , " declares Sandy , a 57-year-old award-winning architect . " I 'm here to relax . " <p> The relaxation costs him money , of course : $6,000 a year to race the Porsche seven times a season . But the expenses are minor compared with the gain from his investment . Sandy 's 13 vintage sports cars , which took him 30 years and $206,000 to accumulate and restore , are now worth $700,000 -- an increase of 240% . He has @ @ @ @ @ @ @ @ @ @ fun and creates profits too -- on paper , anyhow . <p> Even with the vintage market softening dramatically -- as it did in 1990 , when it fell as much as 50% -- collector cars have appreciated more than 350% from 1981 to today with some , like a 1957 Aston Martin DB5 roadster , rising as much as 1,400% . And the interest in racing these drivable savings accounts has mushroomed right along with the prices . <p> Twenty years ago , U.S. vintage racing comprised a smattering of car buffs who drove their old sports cars to the track , unbolted the mufflers , wheeled around for a few laps , then retired to the pits , drank beer and swapped lies for an evening . Today the sport encompasses 44 clubs and organizations and some 79 racing events a year staged across the country from Pocono , Pa. to Palm Springs , Calif . <p> " This is a Sport where the average Joe can go wheel to wheel with the rich guys and then go into the pits and change the spark plugs with them , @ @ @ @ @ @ @ @ @ @ collector , driver and partner in the Los Angeles-based Cole-Yacoobian Racing Team . <p> While it does n't hurt to be a millionaire , all it takes is a little driving skill and a $10,000 refurbished Austin Healey Sprite to earn your place in this kinetic museum . And if you do n't want to race but simply want to have fun tooling around in an old sports car , you can get into the game for a lot less , as the table on page 146 shows . <p> The place it 's tough to measure up to the competition is at the very top level of the sport -- events like the Monterey Historics . The barrier to joining the big boys -- the people who race real collector cars -- is the price of their toys . Thanks to inflation , investment fashion and the auctioneers ' hype , collector sports and race cars can now be pricier than beach lots in Malibu , and the scene inside the paddock at Laguna Seca reveals the high stakes . Eighteen-wheeler transports disgorge crews sporting monogrammed polo shirts , and @ @ @ @ @ @ @ @ @ @ " ground up " restorations . Meanwhile , on the track , three presumably sane owner-aficionados tear around the course , racing a trio of 1962 Ferrari GTOs worth a combined $30 million . <p> As a consequence , there is tension in vintage racing circles between the enthusiasts and the speculators ; between those who prefer their fun cheap and simple and those who want to spend big money to compete . Don Sandy is a man in the middle of this hobbyists ' tempest . As a collector he 's made a killing . As a racer he 's exercised fiscal self-restraint . Now the questions are : If competing requires spending , how much is too much ? And if winning is irrelevant , how deep into his pockets should he dig ? <p> Don Sandy has always loved cars , European sports cars especially . From the time he was an architectural student at the University of Illinois , his designer 's eye and natural exuberance dictated a racy choice of wheels . He figured , if you 're going to spend the rest of your life @ @ @ @ @ @ @ @ @ @ His first sports car was a white , wind-in-the-face , 1955 $1,300 Triumph TR2 -- British-made : noisy , leaky and a kick to drive . It was his most prized possession . Pointing the convertible west to seek his fortune in 1958 , Sandy arrived at the Golden Gate with an empty gas tank , $13 in his pocket and an overdue car payment . <p> Today , as the founding partner of Sandy &; Babcock , a respected $11-million-a-year San Francisco-based architectural firm , as a family man with an attractive and intelligent wife , three homes and two beautiful daughters , what he regrets most in life is ... selling that Triumph ! <p> The shift in loyalties occurred in 1959 when he swapped his cherished but topless TR2 for a two-year-old 1957 Porsche 356A Super coupe . It was a case of cheerio Coventry , hello Zuffenhausen . <p> The Porsche was easy to like . Conceived before World War II and first produced in 1948 , the 356 model was essentially a highly evolved Volkswagen Beetle -- with streamlining . It was robust , sturdy in @ @ @ @ @ @ @ @ @ @ more than 79,000 of them from 1948 to 1965 , and even though it was shaped like a Camay soap bar , Sandy thought , " In its own way it 's beautiful . " <p> The romance has endured for 456,000 miles , eight clutches and seven paint jobs . Sandy took the car on his honeymoon with his wife Carol , then used it to commute to the office for the next 10 years . Eventually , as his family grew , the honeymoon car begat a collection of five more secondhand 356s : four coupes ( including one for a bargain $3,500 ) and a $15,000 Cabriolet . <p> Before long , the Sandys were an all-vintage family . Carol drove one of the restored 356s . So did each of the daughters and occasionally his friends . Giving in to the auto-collecting " disease , " as he calls it , Sandy tracked down two more European classics : a $3,500 1956 Austin Healey LM and a 1.972 Ferrari Dino Spyder he picked up for $15,800 . <p> He had cars stored everywhere , including a carpeted @ @ @ @ @ @ @ @ @ @ I did n't care what kind of car he brought home as long as it was red . " <p> Her husband 's hobby seemed at first like an indulgence . But once his junk turned into jewels , she became a believer . Carol 's only concern these days is that he stay healthy when driving in races , a pastime he was spurred into , ironically enough , by her . <p> As long as Sandy was building his business and raising a family , racing his collection did n't seem prudent or even feasible . Occasionally he 'd take the Ferrari out on 1-5 at dawn and unleash it for a little 160-mph exercise , but that was about it -- until his 47th birthday . That 's when Carol gave him a gift certificate to the Bob Bondurant School of High Performance Driving ( then in Sonoma , Calif. ) so he could learn the true art of going fast . <p> She gave him the $250 one-day course , but he liked it so much he ponied up another $1,145 and stayed for four . " @ @ @ @ @ @ @ @ @ @ took my 356 o the track . " <p> The first thing he had to do before competing at Sears Point , the local course , was invest $2,000 to make the car safe for racing . That bought him a new set of brake linings , a roll bar , a harness-type seat belt , and a set of Dunlop racing tires , all of which would cost $4,000 today . For crash protection , he bought an $80 Bell helmet ( currently $200 ) , a $110 Nomex racing suit ( now $300 ) and $35 fireproof Simpson racing gloves ( $70 these days ) . <p> After that , all he had to do was pay the $100 track entrance fee , fill his tank with 112 octane , $1.50-a-gallon racing fuel ( now $2.50 ) , and step on the gas . <p> Because it was vintage racing , there were some constraints on how a competitor could spend money , since the whole idea was to preserve the historical integrity of the cars . " We stress authenticity , " says Steve Earle , the founder @ @ @ @ @ @ @ @ @ @ You 're not allowed to rig a 1946 Allard to run like a 1966 Lotus . " <p> Preserving the original factory appearance was important too . There were no body alterations permitted-no flared fenders , spoilers or customized fins . But that did n't mean there were n't some discretionary items in Sandy 's budget . For $3,500 , he rebuilt the motor to the original specs using higher-grade components rods with hardened steel and tougher-grade pistons . But the car 's engine displacement still had to be what it was at the time of manufacture : 1,600cc . <p> Then there were cosmetic and convenience expenditures : a $3,192 interior restoration , a $2,000 paint job , a $1,000 trailer to transport the Porsche to the track and a $9,000 short-bed pickup to tow it . <p> The biggest potential racing-related headache was the matter of insurance , since the rates for protecting collector cars vary according to how and where they 're used . Premiums for simply storing a classic -- covering it with a tarp and parking it in the barn -- run about one-half of 1% @ @ @ @ @ @ @ @ @ @ storage , transit and paddock coverage runs about twice that . <p> Putting a 30-year-old car into a four-wheel drift on a crowded racecourse , however , was something else again . Even though vintage racing is basically 70% competition and 30% show , it 's still potentially dangerous ; there has been one death in the U.S. in 400 races over the past five years . <p> The standard on-track policy that is issued through Lloyd 's of London costs a hefty 10% of the value of the car per event . For a $500,000 Ford-powered 1963 C Cobra , that 's $50,000 for a single race . Sandy 's Porsche was worth only $25,000 , but that still meant he 'd be paying about $2,500 in insurance for each race . <p> The solution for him was to " go bare " on the track-race without insurance-and get whatever coverage he could for other times . Fortunately he managed to find an overall policy from J.C . Taylor Insurance that , at an annual cost of $1,100 , covered all his cars during storage and up to 2,000 miles @ @ @ @ @ @ @ @ @ @ cars except the Ferrari , that is . Annual fire and theft coverage was all he was willing to buy for that voluptuous beast -- and that alone cost $1,400 . For races , he would personally have to pay for damages to his car and for his medical expenses , but his entrance fee covered him for liability on a policy issued to the track . <p> During his quest for the perfect 356 Porsche and in his preparation for racing , Sandy tried to keep from going overboard . The son of two Scottish immigrants who knew the meaning of thrift , he says , " I 'm a Midwesterner . I do n't like to throw money away . " <p> What he did like was bargain hunting . Yet the more his architecture business thrived during the ' 80s , the more he was tempted to get into " serious " vintage competition -- that is , running in yesterday 's open-wheeled race cars : Scarabs and Lolas and other nonproduction machines . The problem ? They cost too much . <p> Twenty years ago a slightly @ @ @ @ @ @ @ @ @ @ for $10,000 . Sure , it was gorgeous , but the conventional wisdom at that time was , " It 's just a race car " -- noisy , temperamental and hard to fix . Now the same Ferrari is the automotive equivalent of a portrait by van Gogh . In 1989 a similar GTO was sold to an anonymous Japanese buyer for $13.7 million . <p> For collectors like Sandy , the spectacular run-up was a two-edged sword . On the one hand it turned his cherished wheels into a valuable " portfolio . " On the other hand , it soon became obvious that the speculators were crowding out the " car nuts " and the connoisseurs . Complains Sandy : " You had guys buying $3 million cars who did n't know where to put the oil in . " <p> Even the cognoscenti who could afford these limited-edition screamers would often " sell " them to their bankers , pocket the cash and then lease them back to drive . They could even risk racing the cars because an accident would n't jeopardize their value . Explains @ @ @ @ @ @ @ @ @ @ in vintage racing coverage : " Most of the cars with any significant race history have all been crashed at one time or another . " Assuming the serial number can be salvaged , says Parish , " there is n't a vintage car competing anywhere that ca n't be totally rebuilt for less than $300,000 . " <p> Thus the high rollers could afford to put their Ferraris on the track . Even without insurance , they knew the worst that could happen to one of their $10 million jewels was they 'd have to pay 3% of the appraised value to restore it . <p> Sandy did n't want to play that game . He wanted more fun for less money . So in 1986 , instead of buying a ridiculously expensive Grand Prix Formula I racer , he settled on a more benign , ridiculously cheap Lotus 18 Formula Junior , which at $5,000 seemed like a steal . <p> The only problem was that he bought the car based on a Polaroid snapshot , and when he took delivery , the body was mashed and parts of @ @ @ @ @ @ @ @ @ @ would have been impossible were it not for the existence of a certain breed of can-do mechanics willing to engage in the engineering archaeology and custom fabricating that restoring these rarities requires . The talented ones at places like Phil Reilly &; Co. in Corte Madera , Calif. have plenty of work . The shop has no sign on the door and does no advertising . They do business only with people they like , and they 've got a year 's backlog . <p> The wizard that Sandy found to work on his Lotus was a $50-an-hour independent named Steve Patience-the kind of guy who , if you gave him a set of plans , could build you an automobile . It eventually took $35,000 to get the body and engine in shape , but even that was n't enough to replace everything . On one outing at Sears Point , Sandy was going into Turn 6 doing 90 when the lock ring separated from the rear half shaft . Translation : the wheel fell off . The car rolled over . Fortunately , Sandy only dislocated his shoulder . @ @ @ @ @ @ @ @ @ @ running , Sandy is still ahead on his Lotus restoration . He 's got $40,000 invested in the scaled-down racer , and he 's been offered $70,000 for it . What 's more , the car 's value is enhanced by running in today 's races , especially the Super Bowl of vintage racing , the Monterey Historics . <p> It was the week before the Historics , and Don Sandy was not having a wonderful day . Steve Patience had called to say that when he 'd opened the transmission on the Lotus , the synchromesh was in pieces and there simply was n't enough time remaining to get it ready for the big race . Then Sandy 's Porsche mechanic reported that he 'd finished installing the new gas tank , but he had n't been able to find a specialized fitting to couple it to the fuel line . No coupling , no gas . No gas , no race . <p> Meanwhile , Sandy had arranged to sit in on a get-acquainted meeting at his San Francisco office with a group of prospective VIP design clients from @ @ @ @ @ @ @ @ @ @ day before , and when the visitors spied the Porsche grease under the chairman 's fingernails , they looked at him like they figured he was making extra money after hours working at a gas station . The architect had to show them a blowup photo of his car to make sure they understood that his hobby was car racing , not pumping gas . <p> Somehow , by the time the three-day Monterey event rolled around , the crucial $6 coupling for the fuel tank had materialized , and he and Carol were able to tow No. 356 to the track . As usual , by the afternoon of their race , they had other things to worry about . Since Sandy had blown his No. 1 engine during his last outing , he was using his backup power plant -- the original " honeymoon " motor -- and it did n't seem to have the same oomph . <p> What 's more , one of the other favorites in his heat , Peter Pearce in his Silver Bullet , was running a lot faster than Sandy 's 356 in @ @ @ @ @ @ @ @ @ @ a heftier motor with 140 horsepower to Sandy 's 90 . As if that were n't a sufficient distraction , while Don and Carol waited in the pits for his race to be called , a competitor driving a Lotus 18 , similar to Sandy 's other race car , had his suspension break in Turn 4 and hit the wall doing 70 mph . The driver had to be cut out of his cockpit and ferried to the hospital in an ambulance . The Sandys had no way of knowing the guy had only broken a leg . <p> A few moments later , all this did n't seem to matter . Sandy was squealing through the turns , tearing down the straightaway at 100 mph , dicing through traffic , free of any thoughts about payrolls or Japanese clients . This was what the money and the hassles were all about camaraderie , beautiful machinery , and 20 minutes ' worth of adrenaline and sweat . <p> Guzzling from a water jug after the race , Sandy , who placed seventh out of 24 cars , traded quips with @ @ @ @ @ @ @ @ @ @ it felt like traveling sideways when he was supposed to go straight . Everybody acknowledged that the Silver Bullet had blown them all off the track , but so what ? The " winner " had a $100,000 engine , and Sandy had a $25,000 car . <p> Carol kidded him about the honeymoon motor maybe not being what it once was . " Thanks a lot , " joked Don . But he did n't care . There was life in his old Porsche yet . <p> PHOTO ( COLOR ) : The glory of their times : Donald Sandy prepares to race his 1957 Porsche 356 in the 1990 Monterey Historics , the Super Bowl of vintage car racing . His " dream hobby " provides thrills and profits too . <p> PHOTOS ( COLOR ) : The splendor of their speed : lavish luncheons and a vintage car auction conducted in black tie help turn the annual Montery races into a three-day festival of elegance . Throughout the weekend , the cars are the stars , like these early 1950s Allards up for auction ( below left ) @ @ @ @ @ @ @ @ @ @ ( COLOR ) : The profits of their pastime : sleek machines go on parade , treasures of a car market that has risen more than 350% since 1981 . <p> PHOTO ( COLOR ) : The wonders of their world : a wooden " boat tail " roadster <p> BY ANTHONY COOK <p> 10 ZIPPY LITTLE SPORTS CARS YOU CAN AFFORD <p> If the idea of owning a sports car intrigues you but a Ferrari is beyond your budget , consider the more affordable ' 70s makes like the MGB , Triumph TR6 or Fiat Spider . These cars can be raced ( but they 're really best for hurtling along country roads ) , and you can buy them for way under $10,000 . If you find the right mechanic , maintenance wo n't be a house of horrors either ; in fact , it 's easier than ever to get parts , including newly made ones . <p> But do n't expect these beauties to appreciate much . There are too many of them . Rust-free and mechanically sound , the best will hold value over the next @ @ @ @ @ @ @ @ @ @ . Major restoration work rarely pays off as an investment . <p> After talking to owners of classic-car shops , mechanics and presidents of car clubs , MONEY has compiled a list of the best moderately priced sports cars from the late ' 60s and the 1970s , those that -- in the words of Paul Tsikuris of Tsikuris Classics in Lakeland , Fla. -- " are easy to find and service . " Before you buy , be sure to have the car checked by a mechanic . Then , happy driving . TABLE <p> ILLUSTRATION <p> By Brian Dumaine <p> 
##2018953 Section : WALL STREET What the pros say <p> Most investors looking for long-term capital gains concentrate on the shares of blue-chip corporations with annual revenues of $1 billion or more . But by taking just a bit more risk , you can seek considerably higher profits by investing in baby blue chips -- companies with annual sales of less than $759 million that have strong finances and long histories of steady profit growth <p> The companies ' share prices are likely to be more volatile than those of the largest growth stocks , so you ought to avoid issues trading at price/earnings ratios far above the market multiple , currently 16.7 times estimated 1991 earnings . In addition , you should diversify your money among at least half a dozen issues and be prepared to hang on to them for as long as five years . If you choose shares carefully , though , and ride out any short-term price fluctuations , you can earn an average annual return of as much as 15% , compared with around 10% for big stocks . <p> After seven years @ @ @ @ @ @ @ @ @ @ have roared back since November with an average gain of 43% , compared with only 21% for the big stocks in the S &P; 500 . David Katz , chief investment officer at Matrix Asset Advisors in New York City , thinks the profits are just beginning to roll in . " Small and medium-size stocks with good growth records can underperform big stocks for as long as a decade , " he says , " but then they snap back and outperform in the next decade . " <p> To identify baby blue growth stocks with projected earnings growth of at least 15% annually over the next five years , P/E ratios near or below the market multiple and solid balance sheets with debt below 35% of total capital , MONEY canvassed two dozen mutual fund managers and investment analysts . Their six top picks are discussed below in order of the companies ' earnings growth rates . ( For target prices over the next year , see the table on page 72 . ) <p> Exabyte , with 1990 sales of $170 million , dominates the market for 8mm @ @ @ @ @ @ @ @ @ @ . One of Exabyte 's new $6,000 tape drives can hold 2.5 gigabytes of data , equal to 430 million words . If that amount of data were lost from a computer , re-entering it could cost more than $1 million . <p> Roy McKay , manager of the Scudder Development Fund in New York , likes Exabyte because " its product is indispensable and is being widely installed in the two fastest-growing areas of computing -- networks and workstations . " Sales of workstations are growing by 30% a year , and he projects that earnings at Exabyte will increase at a similar rate . <p> International Game Technology , with $210 million in sales , is the world 's largest maker of high-tech gambling equipment . " The company has taken away the market from Bally and other slot machine makers , " says Ralph Wanger , manager of the Acorn Fund in Chicago . The 10-year-old Reno company has contracts with almost every casino in the state as well as in Atlantic City and also operates four casinos of its own -- three in Nevada and one on @ @ @ @ @ @ @ @ @ @ IGT began producing video terminals that bring the excitement of jazzy slot machines to state lotteries . " Video lotteries also pay off faster than traditional lottery tickets , " says Wanger , " so they raise more revenue . " South Dakota and West Virginia have already installed video lotteries , and bills to legalize them are pending in eight other states . Analysts expect the company 's earnings to grow an average of 22% a year . <p> Fiserv , with $183 million in sales , is a leading provider of data processing services to banks , savings and loans and credit unions . " The company is benefiting from the growing trend among financial institutions to farm out back-office operations as a cost-cutting measure , " says Roy McKay , manager of the Scudder Development Fund . <p> For the past five years , Fiserv has produced steady 20% annual earnings growth , which analysts expect to continue as the company attracts new customers and acquires other financial data processors . In February , Fiserv announced its biggest acquisition ever , buying Citicorp Information Resources for $60 million @ @ @ @ @ @ @ @ @ @ from 900 to 1,400 . Fiserv has also benefited from the S &L; crisis ; since December , it has won contracts to service 40,000 commercial and consumer loans from thrifts taken over by the Resolution Trust Corporation . <p> T. Rowe Price Associates , with $170 million in revenues , is the well-known manager of 32 no-load mutual funds and other institutional accounts totaling $30 billion . " Along with Fidelity , Vanguard and Dreyfus , T Rowe Price has one of the leading franchises in the money-management business , " says John Rogers , manager of the Calvert-Ariel Growth Fund . " And because their assets are well diversified among stock , bond and money funds , the company is surprisingly resistant to stock and bond market fluctuations . " Analysts project that T. Rowe Price 's earnings could rise at least 25% over the next year . <p> Donaldson , with $423 million in sales , is the leading producer of air-cleaning equipment for heavy-duty diesel engines , air filters for computer components and pollution-control devices for smokestack industries . Now Dan Leonard , manager of the Financial @ @ @ @ @ @ @ @ @ @ get a boost from the federal Clean Air Act , which starts going into effect this year . He explains , " Customers will now have to replace their filters even more frequently than before . " Including the company 's strong growth in overseas markets , which account for 34% of total sales , analysts expect Donaldson 's earnings to increase at an average annual rate of 15% . <p> Harleysville Group , a property and casualty insurance company based in Harleysville , Pa. with premium income of $305 million , serves mostly small and medium-size businesses and families in towns east of the Mississippi . " By maintaining high standards on the policies it writes and investing premium payments conservatively , Harleysville has kept out of the kind of trouble many insurance companies have fallen into lately , " says Charles Allmon , editor of Growth Stock Outlook , an investment advisory newsletter in Chevy Chase , Md . <p> Because the company chiefly writes long-term policies , it does not have to lower its rates much to match short-term price-cutting by competitors . This has enabled Harleysville to @ @ @ @ @ @ @ @ @ @ a result , the company 's net cost of underwriting is five percentage points lower than the industry average . Although Harleysville 's projected earnings growth is only a moderate 15% a year , analysts think that the stock 's low P/E ratio of 8.8 times estimated 1991 earnings makes it a top buy . The markets at a glance <p> Postwar euphoria lifted stock prices sharply in March . Small-company shares , up a stunning 7% , beat out big stocks , up just 1.4% . Short-term interest rates continued to decline , to 5.94% on Treasury bills , while 30-year Treasury bond yields edged up to 8.25% . THE Money SMALL INVESTOR INDEX SMALL INVESTORS EARN 6.5% IN THE FIRST QUARTER <p> A spectacular first-quarter rise in stocks helped fatten individual investors ' portfolios by 6.5% , according to MONEY magazine 's Small Investor Index . For the year so far , the average portfolio rose $2,682 , ending at a record high of $44,277 . <p> As the S &P; 500 surged 15% , individuals moved billions of dollars into growth stocks and mutual funds in the first @ @ @ @ @ @ @ @ @ @ blue-chip growth funds , and another $2 billion went into small-company funds . <p> Overall for March , the index , adjusted for the latest Federal Reserve data , rose $573 . Stocks provided a $413 profit , bonds added $78 , and CDs and money funds contributed $87 . Returns for the past year -- and where the money is now TABLE SHOOTING FOR MAXIMUM CAPITAL GAINS <p> Analysts say these stocks , which have leading positions in fast-growing industries , could turn in gains of 20% over the next year . All eight trade at moderate P/E ratios , based on estimated 1991 earnings . They are ranked here by projected annual earnings growth over five years . TABLE <p> GRAPH : Big stocks vs. small <p> GRAPH : The yield curve <p> ILLUSTRATION <p> By Jordan E. Goodman <p> WATCH OUT FOR EARLY REDEMPTIONS OF MUNI BONDS <p> This year some $40 billion of tax-exempt bonds will be called -- redeemed early-according to the Public Securities Association , an industry group . Many of these munis were issued during the early 1980s with yields of 11% or more @ @ @ @ @ @ @ @ @ @ 1 , 1983 , you may not be told when it is being called and you could miss out on as much as six months ' interest , according to Lauren Eastwood , vice president of reasearch at Gabriele Hueglin &; Cash man in New York City . To be safe , ask your broker to check Standard &; Poor 's Semiweekly Called Bond Record , or call the paying agent listed on the bond . And have your certificate numbers at hand . <p> By Baie Netzer <p> 