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Consider mutual fund for foreign investing

Q. What do you think about German bonds as an investment?

A. European bonds offer relatively high yields and potential for capital gains because economic growth in Europe is slowing and interest rates may come down. However, you have to keep in mind that any time the value of the dollar goes up, the value of foreign securities goes down.

"We like most European bonds, but we're not particularly crazy about German bonds," said Leslie Nanberg, head of global fixed income investing for Massachusetts Financial Services Co. in Boston.

He said the German government has kept interest rates high because of concern about inflation as a result of German unification. That, in turn, has helped prop up rates across the continent. However, he said yields are even higher in some other countries, such as Denmark, Spain and Ireland.

"Our feeling is that if German bond yields come down, yields in these markets will also come down," he said. "We'll get the same capital gain, but in the meantime we're being paid more."

If you are interested in foreign bonds, consider making your investment through one of the many U.S. mutual funds specializing in international investing. In its February issue, FW investment magazine gives top ratings to Shearson Global Bond Fund, Fidelity Global Bond Fund, T. Rowe Price International Bond Fund and Massachusetts Financial's Worldwide Government Bond Fund. Other mutual fund companies have similar funds.

Q. I am an 84-year-old widow living in a condo with a $230-a-month mortgage and $100 in monthly maintenance fees. I have about $25,000 equity. Until this year, I had income of $23,000 from Social Security and investments, but it has dropped to $18,200. I could pay off my mortgage this summer when I have a CD mature, but I'm not sure if I should. If I became incapacitated, I would have to go live with my daughter in another state. With no mortgage, my condo might be difficult to sell. What do you think I should do?

A. I suggest that you pay off the mortgage. That will reduce your expenses whether you stay in your condo or go live with your daughter. Even if you moved, you would want to keep up your mortgage payments until your condo could be sold.

I asked Ginger McQuigg, general manager for Prudential Florida Realty in Pinellas County, how much of an advantage having a mortgage would be if you put your condo up for sale.

"It may not be of that much benefit," she said.

First of all, she notes that most mortgages cannot be assumed by another buyer. You'd need to check the paperwork on your mortgage to find out if that's the case with yours. Second, she says that in many condominium complexes, most of the buyers pay cash and an assumable mortgage would not be a sales incentive.

Furthermore, as long as interest rates are low, anyone buying your condo should be able to find an attractive new mortgage.

Q. I am a 71-year-old widow living on Social Security and interest on CDs. I have three CDs maturing and am trying to decide whether to roll them over or take out a $50,000 annuity. One plan would give me $478 a month for life. Another would pay $258 a month with return of principal after five years.

A. I think annuities work best for people who are putting money away for 10 years or longer, getting some real benefit from tax-deferred compounding. It seems to me that they don't offer much advantage to a person in your situation. I asked for an opinion from Murray Pascual, senior consultant with Siver Insurance Management Consultants in St. Petersburg.

"I would discourage her from doing it because of her age," he said. "Once you put that money into an annuity, you give up your freedom and flexibility. It's gone."

If you split your money into five Treasury notes with varying maturities, you'd increase your yield, hedge your interest rate risk and still have liquidity.

Helen Huntley writes about investing and markets for the St. Petersburg Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Questions should be sent to Helen Huntley, St. Petersburg Times, P.O. Box 1121, St. Petersburg 33731.

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