Wartime Investing

Physician's Money Digest, April15 2003, Volume 10, Issue 7

Forbes/Lehmann Income SecuritiesInvestor

The war with Iraq has 2 probable outcomes—a quick, decisive victory or along, drawn-out conflict that spawnsterrorist counter-strikes against Americantargets. The former will most likelyresult in a market rally; the latter willprobably bring on a rerun of the bearmarket. How should physician-investorsreact to take advantage of either scenario?Richard Lehmann, editor of the (www.forbes.com/lehmann),recommends bulking up on fixedincomeissues, including bonds andbond-backed preferred stocks. If you'reunder 55, Lehmann says, reposition yourportfolio to a 50% stock/40% fixedincome/10% cash ratio. Knock a percentagepoint from your stock holdingsfor each year over age 55.

If you have to sell losing stock toaccomplish this, bite the bullet—youcan use the losses to offset any gains.If you have no gains, you can carrythe losses forward to use againstfuture profits, making those profitsvirtually tax-free. Lehmann also recommendsa dose of risk for your portfolio,in the form of junk bonds andbond-backed preferred stocks. Bondsand bond-backed preferred stocksthat are convertible into commonstock are a good way to wait for apost-war rally, while getting paid niceyields for your patience.