Newspaper article St Louis Post-Dispatch (MO)

Famous Stock-Picker Picks Bonds

Newspaper article St Louis Post-Dispatch (MO)

Famous Stock-Picker Picks Bonds

Article excerpt

The typical retiree he's not.

Peter Lynch, 50, ascended to financial superstar status before calling it quits as manager of Fidelity's Magellan fund four years ago. Now, he clocks two days a week at Fidelity and devotes two days a week to charity.

But to match his semi-retired lifestyle and to compensate for the earnings decline since he said goodbye to 90-hour workweeks, he has made some changes in his own investment portfolio. The renowned stock picker - shock of shocks - even buys bonds.

"I had a change in income and, therefore, decided to own something that pays interest," said Lynch, who is vice chairman and manager of research at Fidelity but splits his time between a Boston suburb and Ireland, where he is restoring an 18th-century Georgian farmhouse.

While his personal wealth, including a substantial stake in Fidelity Investments and three homes, puts him in rarefied company, his investment approach remains startingly simple.

No esoteric derivatives jump off his page. About 15 percent of his portfolio is in bonds, 5 percent in cash equivalents and most of the rest in common stocks, he said. As individual as such decisions are, his asset allocation approach could serve as a model for people at a similar stage of life who take an aggressive stance.

The prospect of more increases in interest rates frightens some bond investors, who have been pummeled this year, but Lynch remains sanguine. His Treasury securities and Massachusetts municipal bonds have five- to seven-year terms, putting him in the intermediate camp. Such securities will lose less value than 30-year issues if rates rise.

"I always play the yield curve," Lynch said. "You aren't paid to go beyond seven years," but you do get a two-percentage-point advantage over money markets by buying medium-term bonds.

And municipal bonds, with their tax-free income, are a proven favorite of the wealthy.

Despite the foray into bonds, Lynch remains bullish on stocks. He thinks the average investor can expect an annualized return of 10 to 11 percent on stocks in the 1990s. …

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