Q. What do you think of Series-I U. S. Savings Bonds for a fixed-income investment? My company recently had a payroll deduction savings bond campaign.   I passed this up, but based upon what I learned I bought some Series-I U. S. Savings Bonds.

These inflation-indexed bonds currently pay 7.49 percent.   The earnings rate combines the 3.60 percent fixed rate of return with the 3.82 percent annualized rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI-U).   (http://www.publicdebt.treas.gov/com/comi500.htm)

You can cash an I Bond anytime six months after the issue date to get the original investment plus the earnings. However, if you redeem an I Bond within the first five years, there is a 3-month earnings penalty.

The rate looks good to me, and if it should drop greatly or be bypassed by other opportunities, the penalty does not seem excessive.

I bought mine at a bank, but you can buy up to $500 worth of bonds in a single online transaction and use Visa or Master Card.   From a bank $10,000 denominations are available.   There is a limit of $30,000 per purchaser per year.

---D.J., Dallas, TX (by e-mail)

  

A. Inflation adjusted Savings Bonds are a great deal---7.49 percent for five years, tax deferred, with no credit risk, beats just about anything. According to Fisher Publishing, a Dallas firm that has the largest database of fixed income annuity products, the average tax deferred annuity yield in May was 6.97 percent. Because they are sold on a commission basis, these annuities usually have large surrender penalties if you redeem early. These penalties can start at 10 percent of your total investment in the first year, although most are at 7 percent. The average 5 year CD type annuity was yielding 6.39 percent.

Either way, the inflation adjusted Savings Bond is a great deal, particularly for small investors.

  

Q. I have about $16,500 in Vanguard Total Stock, $16,200 in Vanguard 500 and $15,700 in American Century Income and Growth. All three were invested equally ($12,000) at the same time and these are taxable accounts. What I am thinking of doing is cashing in the American Century Account and buying Janus Mercury with what is left after expenses and taxes. Do you think the move is worth it? It seems to me, if the market continues at its present pace, the Janus fund would earn back the expenses and taxes plus more than the American Century fund by the end of the year. What do you think?

--M.G., Minnesota

  

A. What you are thinking about is a very fundamental shift in portfolio philosophy. American Century Income and Growth has been in the top 4 percent of all large value oriented equity funds in the last 3 and 5 year periods, according to Morningstar. Other data from the same mutual fund data publishing firm indicates that the portfolio is 27.7 percent technology stocks, has an average P/E ratio of 30.8, and a 3 year trailing growth rate for earnings of 19.9 percent.

Janus Mercury, on the other hand, is a fund that invests in large company growth stocks that has been in the top 2 percent of comparable funds in the last 3 and 5-year periods. It has some 46.7 percent of its portfolio committed to technology stocks, a portfolio average P/E ratio of 53.1 and a trailing 3-year average earnings growth rate of 35.8 percent.

Both are fine funds, at the top of their game. For you, the issue is whether you want to be a passive investor with a tilt toward growth or value. What I would be afraid of, in your position, is changing horses at the wrong time. While Janus Mercury blasted by American Century Income and Growth over the last year and three year periods, it has been trailing so far this year due to the technology issue sell-off.