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Dear Mr. Berko:

Dear H.W.:

I’m among the few market observers who believe interest rates are going to zoom in 18 months or sooner. When interest rates move higher, many investors could suffer more losses because they’re glued to fixed-income long-term investments with 3 percent to 5 percent coupons that could fall in price so that new investors at lower prices could earn 8 percent to 10 percent or better on the same investments.

The hard-charging alpha dog brokers, who a few years ago were swinging for the fences, are now tiptoeing through the tulips because they have been too numbed by the slaughter to think creatively.

I believe we’re entering a new economy in which certain sectors with close ties to lobbyists and members of Congress will be hand-fed with dollops of largess to guarantee their survival. With that in mind, we’ve put together a slightly aggressive growth and income portfolio for the new economy.

Six-month paper: Invest $10,000 each in National Westminster (A-rated), Protective Life (AA-Rated) and Goldman Sachs (A-rated). These issues all mature in six to seven months and have an average annual yield of 5.33 percent.

One-year municipal bonds: Invest $10,000 each in New York State Dormitory (A-rated), Massachusetts Muni Revenue (AA-rated) and New York City (AA-rated). These three issues, which mature 12 to 13 months from now, have a combined current tax-free yield of 3 percent. If you are in the 30 percent tax bracket, these municipal bonds have a tax-equivalent yield of 4.3 percent.

Two-year corporate bonds: Invest $10,000 each in Genworth Global (A-rated), Hartford Trust (A-rated) and Countrywide (A-rated). These issues all come due in 24 to 26 months and will give you a current 10 percent return.

Five-year corporate bonds: Invest $10,000 in Merrill Lynch (A-rated), $10,000 in Wachovia (AA-rated) and $15,000 in Principal Life (AA-rated). They all mature between April and May 2014 and will give you a five-year average interest return of 9.1 percent.

An investment of $125,000 in these 12 fixed-income selections will have an average yield of 7.125 percent and earn $8,550 in income.

Now consider the following equity sectors:

Invest $30,000 in seven oil and gas pipeline master limited partnerships with yields between 7.5 percent and 9 percent. In most cases, a good portion of the dividends will be tax-deferred. Next invest $30,000 in 10 high-yield closed-end bond funds with current yields of 10 percent or better. Then invest $30,000 in six electric utility issues with 4 percent or better dividend payouts. Finally, invest the remaining $35,000 in 10 “fallen angels” like General Electric Co., Hartford Financial Services Group Inc, Alcoa Inc., The Dow Chemical Co. and others that were featured in a previous column.

This portfolio will provide you with about a 6.2 percent return, or $16,000 in dividend and interest income.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service