Betting on the Market

A Pro Answers Viewers' Investment Questions

Personal finance pro Jordan Goodman of Money Magazine answers investment questions.

Q Hello,
I am a college student and I would like to invest some money that I have earned during the last couple of years. I am trying to decide what exactly I should do. I was told that IRAs are good stable investments but I am really interested in the stock market. I regularly watch CNBC and keep track of some tech company stocks.

Then tonight I saw frontline for the first time and they talked about mutual funds. With so many options available, what investment "path" would be best in planning for my future?

A The first step to start investing is to learn about your investment options. If there isn't a course on investing in the college you are attending, read some good books or magazines about the subject. (I wrote one that may be helpful called Everyone's Money Book, which you can get by calling 1-800-489-9929. It has loads of resources to help the beginning investor.) Once you have a sense of confidence, I would start with a mutual fund, because there you will have a professional manager looking for you. You might even start with an index fund, which buys the 500 stocks in the S+P 500 index, which often outperforms many other funds at very low cost. Once you have had some experience with funds, then branch out into individual stocks. An IRA is a tax-deferred vehicle to hold funds, stocks or bonds--in itself it is not conservative or risky--it depends on what you put into it. It is definitely a good idea to open an IRA account as soon as you have earned income, because you can have the money grow tax-deferred for many years.

Q Is it wise for us at 55 yrs. to have 30% of our 401K assets in an aggressive fund like 20th Century Ultra? The other 60% is split between company stock (insurance), a growth & income fund and fixed (10%,35% and 15% respectively). Thank you for your response.

Simsbury, CT

A I think you have a pretty good asset allocation in your 401k. The Ultra fund is about the most aggressive fund out there, and it has a great long-term track record. Since you have about 10 years to retirement, it should give you the highest long-term returns, though with great volatility. If you believe in your company, it's fine to have 10% in it, though not much more than that. I don't want you to bet your career and investments on one company. The growth and income fund should give you good returns over the long run, with lower volatility. I would keep the fixed income fund exposure quite light until you are just near retirement. For the next 10 years, you want growth, not income.

Q Dear Sir,
I noticed an article in the WSJ on a company called Cadus Pharmesuticals. The Journal suggested buying Cadus and the stock took off. It almost trippled in four days and I cant find any other reason than the article. Do favorable articles in well known publications usually have that much influence on the buying of a stock?

Edward Barbian
Grants Pass, Or

A Positive or negative writeups in influential newspapers or magazines definitely influence stock prices. Some of the most influential publications are the Wall Street Journal, The New York Times, Investors Business Daily, Forbes, Business Week, Fortune, MONEY, and Smart Money. On TV, Wall Street Week on PBS, CNBC and CNN all move stock prices. Investors react to news all at once when a publication or broadcast comes out, causing the enormous volatility. It will be very difficult for the average investor to react quickly enough to see news announcements to benefit from them, however, because the reaction is almost instantaneous today.

Q My wife and I trying to live debt free. We own two cars outright but want to keep it that way. We are setting aside $400/month for "new car savings" and plan on doing this for most of our life. Hopefully when it's time for a new car we can pay for it with cash. Basically we are "pretending" these are car payments most people are obliged to pay only we want interest to work for us not against us. Right now the money is in a money market account. Can you suggest a better way to invest this money. I'm tempted to put this in a conservative mutual fund. Unwise?

The Woodlands, TX

A If you want to get a slightly higher yield without much more risk, take a look at a short-term bond mutual funds. They yield between 6% and 7%, which is more than the 4-5% of money funds, and are still quite safe. Most short term bond funds also allow you instant access to your money through check writing privileges. So when you need the money to buy the car, you can get at is without penalty.

Q For someone like me, who lives paycheck to paycheck, with very little money saved back but can put together $500.00 to $1000.00 in about a month with a little belt tightening, where should I start? I'm not looking to get rich overnight (but I wouldn't fight it if it happened), Just looking for a little financial security for a child's future and my wife and mine's future retirement. A small, extra monthly income wouldn't hurt either.

A You should sign up for one of the automatic investment plans offered by many mutual funds who will take from $100 to $500 a month out of your checking account automatically. If you do it with a no-load mutual fund, you can do this without paying any commissions. The more automatic you save, the better the chance that it will happen. If you are relatively young (under about 45), you should put the money in a high-quality stock mutual fund because that will give you the highest return over time. Just be prepared to accept the short-term volatility of such stock funds.

Q As a 31 year old new father, I am particularly interested in long term growth, say 18 years when my daughter hits college age. I'm concerned that fund managers are too focused on short term results. Are there funds that are truly focused on long term growth or are us youngsters better off picking a mix of stocks on our own, relying on Valueline and other types of resources?

Jerry MacLaughlin
Alexandria, VA

A There are plenty of good funds that concentrate on long term performance that would be good for your kid's college fund. Take a look, for example, at the 20th Century Giftrust Fund in Kansas City at (800) 345-2021. It has a great long-term track record, and it is specifically designed for funding college educations. One way you can tell if a fund is long or short term oriented is the so-called turnover ratio, which you can find in a fund's annual report. The higher the ratio, meaning, say over 50%, the more short-term oriented the fund manager is. A fund manager who only turns over 10% to 20% of his fund holdings every year is long-term oriented.

Q I'm 34, single, am about to inherit a small sum, and want to invest it prudently for the long term. Ordinarily I'd pore over the Morningstar, and carefully choose a few mutual funds. But I fear that I am too late into the stock market cycle to put my money into mutual funds. Am I crazy if, instead, I put my cash directly into individual stocks? What advice do you have for tracking down *undervalued* stocks? What are the key financial figures to look for? What ratios and other measures are worth focusing on?

Finally, can one use U.S. discount brokers to buy shares overseas?

Arlington, Virginia

A Since you are single and 34, you should feel able to take the risk of stocks and mutual funds now. Just realize that they can go down as well as up. Chances are heavily in your favor, however, that stock prices will be much higher when you need the money in 30 or 40 years. You might use some good index funds as a base for your portfolio, because index funds beat many other funds and have the lowest management fees around. In picking other funds, mix up your styles so you have some growth funds, some value funds, some big-stock and some small stock and some international funds. Over time some styles will do better than others, but this way you will always be in winning style fund. I would highly recommend you get into individual stocks as well, if you can spend the time and effort to do it well. You can make or lose much more money in individual stocks because you are not as diversified as when you are in a mutual funds. As a beginner, you might want to stick to stocks where you know their product or service, instead of picking some esoteric high-tech company you don't understand. One way to get ideas is to get a free annual report of a mutual fund with the style you like and see what stocks they own. Since you are interested in "undervalued" companies, take a look at the portfolios of value stocks. They tend to look for stocks with low price earnings ratios where the stock price has recently fallen because of some bad news, but the fund manager thinks the stock will recover. On your final question, yes, U.S. discount brokers can definitely buy shares overseas. The best way to buy foreign stocks is in the form of ADRs, or American Depository Receipts, which trade on American exchanges and pay dividends in dollars.

Q What investments should a 32 year old investor be in if in fact we are due for a 20 to 30% correction in the market? What about corporate bonds or are their other low risk investments I should be diversified in? Specifically do you have any suggestion for money market funds or mutual funds. I am currently fairly diversified between growth funds, income funds, international funds etc. But I am concerned that all of these are primarily invested in equity.

What might you suggest?

Barrington, IL

A If in fact there was 20% to 30% market correction for sure and you wanted to avoid it, you should be in money market mutual funds or short term bond funds. Right now, the highest yielding money fund is the Kiewit money fund at (800) 254-3948, which is yielding 5.41% and has $10,000 minimum. Number Two, with a 5.39% yield and a $1,000 minimum, is the Aetna Money fund at (800) 367-7732. You also might take a look at short term bond funds like the Strong Short Term Bond fund, now yielding 6.89% at (800) 368-1030. Just remember, though that no one can be sure if and when there will be a sharp market correction. Many famous analysts have been predicting it for the last two years, and they missed a rise of over 2000 points in the Dow Industrials. Instead of going to cash completely, you might take some money off the table and consider the rest of your holdings as long term investments, and just be able to ride out any downturns.

Q (I'm about 20 years away from retirement.) Since the market looks ready for a fall, do you recommend getting out of mutual funds which may go down with the market and get into individual stocks which have some chance of going up despite a sustained bear market? On the off chance that you'll answer a specific question, what do you think about investing in Wendy's in a dividend reinvestment program? Finally, any suggestions on where you would invest for a steady 10% per year return? Thanks!

Irwin Myers
Wilmette, Illinois

A If the market does fall, stocks will go down just as much if not more than mutual funds! There are few so-called counter cyclical stocks which actually benefit if the economy goes into a recession, but they are few and far between. Some examples: prison companies like Wackenhut Corrections and Corrections Corp of America (more crime during bad times); pawn shop owners like Cash America that see boom times when people need to borrow money badly, and temporary help firms like Robert Half, Kelly Services and Olsten, as employers hire temps as they lay off full time workers. But in general, when the stock market falls, most stocks fall with it.

I am a big fan of dividend reinvestment plans, because it is a low-cost and automatic way of saving. First pick a company that you want to be in for the long term, and then enroll in their DRIP. My favorite DRIPS are discount DRIPS, where the company gives you a 5% discount on reinvested dividends. So if you reinvest $100 in dividends, they will give you $105 worth of stock. I have a list of over 100 such companies in my book, Everyone's Money Book (1-800-489-9929).

Finally don't expect a steady 10% return a year. Some years, like 1995 and 1996, will be much better than that, and some like 1994, will be worse.

Q I have $2500 to start with and would like to get into the stock market but don't know how to start. Should I use one of the no load, do it yourself, on line Charles Schwab type brokers or what would you recommend. I have a 403B plan at work that is in Alger Sm Cap funds and Oppenheimer growth funds, but these are very slow and with no immediate return. Also we have Kodak, Bausch & Lomb, and Xerox here in town where we can keep a close eye. Is this an advantage for investing or too close for comfort? Thanks.

George Fox
Rochester New York

A There is nothing wrong with getting started with your $2500 at a no-load mutual fund or Charles Schwab discount broker, except you will not get any personal attention. They will give you literature, but you will have to make up your own mind amongst a vast array of choices. If you spend some time at it, it can be fun and rewarding. Frankly, most brokers are not going to be very much interested in you with that small amount of money, so the discount route is probably the best way to go. As far as watching local companies like Kodak and Xerox, that can make sense, but I wouldn't rely on it too much. These are global companies, and you don't really know what is going on with their operations everywhere just because you live in Rochester and read the local paper. The idea of buying stocks of companies whose products you like, the way Peter Lynch did at Magellan, makes more sense to me.

Q Hi, I am a 23 year old Mech. Engineering student(3rd yr.) and want to start to learn about and invest in the stock market. But have been so overwhelmed with this and that way to "make it big" where do I go to learn the basics? ie investing 101? Also, lets say I was ready to start now. Could I start with as little as $200 and adding slowly, that is to say, what is the least amount of money one can start with. Finally, do all stock brokers get the same commission on a given trade? And (the real finally) how might I go about finding a broker?

Dan Feig

A To get started investing, you can get some good books and go to free courses at local schools. I also recommend the non-profit American Association of Individual Investors, which holds classes all over the country. AAII national headquarters is in Chicago at (312) 280-0170. I have several chapters in my book (Everyone's Money Book 1-800-489-9929) on the basics of investing in stocks, bonds, cash, mutual funds, etc. and at the end of each chapter I list extensive resources like other books, newsletters, associations, etc. to help you get educated about the market. You can get started in some mutual funds for as little as $100 a month if you sign up for an automatic investment program, taking $100 a month out of your checking account. Finally, brokers all charge different amounts of commission for each trade. Charges vary widely between full service and discount brokers, and between full service brokers. There are so-called value brokers which charge based on the value of your trade, and there are share brokers that charge a fixed amount per share. Depending on he kind of trades you make, a value or share broker may be better for you. The more actively you trade, the lower your commissions will be. For a survey on the commission rates of all the discount brokers, contact the Mercer Discount Broker Survey at (800) 582-9854.

Q I'm a (relatively) young individual (30) interested in investing. My wife and I have been married a year and have just bought a home. Long term security is now a reality, a necessity. A bear market doesn't sway me since I have at least thirty years before retirement (hopefully, not many more). What types of long term investments do you recommend for someone who is just starting to invest? My knowledge of the stock market is close to nill. I have been tracking some stocks, but they are technology stocks and strike me as short term, not long term winners. Also, what type of initial investment is necessary? I do not have a great deal of money to initially put into the market and am planning to invest more as time progresses. Thank you, Miles Emerson.

A The key for you is to learn about investing and start putting money into stocks and mutual funds on a regular, automatic basis. It is good that you have a long-term outlook because most people that try to time the market get it wrong. You might want to start assembling a portfolio of good no-load mutual funds. One of my favorite newsletters to help you is called the No-Load Fund Investor at 800-252-2042. For the long term, go for growth stocks, which tend to go up over time in line with their rising earnings. Or you can go for growth stock mutual fund with a good record. Clearly, technology is growing area, though it is far more volatile on a short-term basis than other industries. You can get started for $100 or so if you sign up for an automatic investment plan with many mutual funds. As your income rises, increase the amount of money you set aside automatically into these funds.

Q I have little doubt that a large market correction will occur, but I do wonder how to profit from one. I would expect few safe investments in a real crash but what about a slow collapse. Cash, gold, other commodities which investment plays might have a decent return in a late '90's bear market? As for a crash I assume going short specific high flyers, buying puts on those stocks or just shorting the indices would be highly profitable were it not for the difficulty in being a market timer. Comments please.

Christopher Fairlie
Davie, Florida

A There are many ways to play a market decline. Going into cash, or money market funds, is the safest, of course, because the value of your money can't decline. If you want to bet on the market decline, you could buy put options on individual stocks or on a market index like the Standard & Poor's 500, the so-called OEX contract traded on the Chicago Board Options Exchange. You might also look into long-term options called LEAPS, traded on the American Exchange, which give you two years for your bet to work out instead of 3 or 4 month as with most options. You can also sell individual stocks short, hoping to buy them back at cheaper prices and profit from the difference. Your timing has to be great, though, with these strategies. The last 6 years have not been a lot of fun for bears, short-sellers and put buyers. At some point they will be right, but you might have to withstand a lot of pain until you get there. I do not think gold would do well in a market correction either--it has been plunging for quite a while and I think will stay down because of supply and demand factors.

Q What is the best strategy to avoid downturns in the Market? Is it a rule to have a stop limit order on all positions? I noticed that since the market fluctuates so much, perhaps up or down as much as 10% or more in a given day, what other strategies are generally practiced? Am I a fool for not having stop limit orders to protect my investments? And how do long-term investors have stop positions??? I appreciate your wealth of knowledge and insight into this matter.

Daniel Eng
Delray Beach, FL

A Putting in stop-loss orders on stocks is certainly one way to protect yourself from a market down draft. A stop loss order automatically sells your stock at a predetermined price which you set. You have to put in a particular price, not a percentage, however. So if your stock is at $30, you put it in for $25, not 20% below prevailing market price. If the stock moves up to $40, you have to tell the broker to move the stop up to $35, or whatever. It does not move up automatically. Don't put stop loss orders in too close to the market price, because chances are the stock will dip right to your stop and then take off again if you only put it, say 10% below the current price. I would say to put it in 20% to 25% below the current price--you are trying to protect yourself against disaster, not catch every last dollar of profit. Long term investors tend not to use stop orders because they don't care what is happening to their stocks on a short-term basis.

Q Looking for a "safe", conservative investment for IRA account. Want to go with bonds. Should I buy treasuries direct or invest in a bond mutual fund? What maturity is best at this time?

A If you want a safe investment with a yield for your IRA, you could buy Treasuries directly through any bank or broker. A bond fund gives you a more widely diversified portfolio. Just realize that a bond fund never matures the way an individual bond does, so that you might never get your principal back from a bond fund if the price falls, while you can always be assured of getting your principal back when an individual bond matures. I would say the best bond maturity now would be 5-7 years, where you get the highest yield with the least risk. It is not worthwhile to get a 30-year bond, because the small amount of additional yield you get is not worth the tremendous extra risk of long-term bonds. To find the best maturity at any time, look at the "Yield Curve" chart in the Wall Street Journal every day. It compares the yields on all maturities of bonds from 3 months to 30 years, and you can pick the "sweet spot" on the chart that give you the highest yield with the least risk.

Q Nervous about the current state of the market, I recently shifted all of the money in my 401K. plan out of the "aggressive" portfolio and into the "conservative" money market fund. I had always been under the impression that money market funds invested in T-bills and CDs and other government-backed financial instruments, and so were essentially risk free. Recently, I read that some money market funds lost value a few years back due to investment in derivatives. Just how risk-free are these funds and, given the pressures on fund managers - even of "conservative" funds - to perform, what options do people have in trying shield the funds in their 401K plans from current market mania?

A Money-market funds are not totally risk-free, but no one has ever lost money in one because the parent fund company will usually step in and make up any losses, though they are not required to do so. General purpose money funds invest in corporate securities like CDs and bankers acceptances as well as government paper like T-bills. As a result, they get higher yields than government-only money funds, which only buy direct obligations of the government. If you feel safer, buy a government-only money fund, available through most major fund companies. Just realize you will get a lower yield as a result. Most money funds do not play around with derivatives, so I wouldn't worry about that. If you want total safety, keep your money in a bank money market account, where you are insured up to $100,000 by the FDIC. Just realize that you will get an even lower yield in a bank money fund. The money funds inside 401k's tend to be very conservatively run, so I wouldn't worry about it too much.

Q Last night's show was eye opening. I have 90% of my net worth in an array of mutual funds through Smith Barney. Last night's show raised serious doubts in my mind about how much "diversity" I am getting in my portfolio through mutual fund investments. I've heard that for the long term, a "buy and hold" strategy is the safest way to invest in stocks, and produces an average or better return . Are there any mutuals that use this strategy? Would you recommend them as a refuge from the (rather scary) go-go mentality of the fund managers portrayed on the January 14 Frontline Show?

Michael Witmer
Los Angeles, CA

A There are many mutual funds that buy and hold stocks longer than go-go funds shown on FRONTLINE. The way you can identify them is by their "turnover ratio", which is the percent of their portfolio that they buy and sell each year. A turnover ratio of less than 50% means they tend to buy and hold, while anything over 50% means they are far more active traders. Garrett Van Wagonner--the manager profiled in the show--might have a turnover ratio of 200% or more. Another way to protect yourself is to diversify the types of funds you are holding. If you have some value funds, some growth funds, some international funds, some small-cap funds, etc., you will weather storms better than if all your money is all in one kind of fund.

Q Anticipating a market downturn, we converted a stock fund into a money market fund at the end of November '96. That Fund's NAV has gone up $1.00 since we converted. We like the fund but wonder if we get hurt by returning to it at a higher price---or should we look for a fund with a NAV at or lower than the price which we converted? Thank you.

A Money market funds always have their net asset value set at $1.00 and never change. So you have not experienced any gain or loss in the value of your shares. You earn interest on your money market funds instead of seeing the share price fluctuate as it does on a stock or bond mutual fund.

Q I have been reading that investing globally is a good way to diversify my investments. Japan and Latin America have had poor performances recently - Is this just hype by the Mutual Funds trying to sell their funds or is it really a wise move at this time?

Philip E. Pryor
Boston, MA

A In the long run, diversifying globally should in fact increase your return and lower your risk. So far in 1997, the Japanese stock market has tanked while the American market has soared, so it wouldn't have worked out too well lately. If you have a long-term perspective, investing in faster-growth markets like Asia and Latin America is bound to pay off, though you will experience great short-term ups and downs. I recommend you put about 20% of your portfolio in a good international fund with a solid long-term track record and don't watch it too closely because you will tend to panic when it is down and get too excited when it is up.

Q I haven't heard any real in depth discussion on what the effect of all the automatic pre-tax deferrals of income have had on the stock market. It seems that with most of the options available to investors' in this area, most will opt for a fund of some type, rather than low returns of the more secure investments. Is this the real fuel of the run up? How can we analyze it? Where can I find sources of information on where the money is coming from, (i.e. investors age, income, etc.)? I'm questioning when the demographics begin to change, what (or when) is the effect? Also, is there a chance that any time soon (say 5 years) that the Federal government would change the tax laws allowing a wider range of pre-tax retirement options? The example I'd like to see is using your primary residence for retirement. For example, take your current 401k savings and pay off your mortgage. (I'm sure there's lots of implications of doing this, but think how attractive it is to someone who may be forced into a less paying job due to the nature of our economy) Thank you!

Jerry Oshel

A The money flowing in from 401k plans into stocks is extremely significant in the market rise. Some analysts think it is supplying 50% or more of the money going into the stock funds now. And because it is regular--the fund managers know they are getting a new load of money every two weeks--it gives the fund managers the courage to be aggressive. There are plenty of sources of the data on the 401k phenomenon. One good central place to start is the Employee Benefit Research Institute at 2121 K Street, N.W., Washington D.C. 20037 (202) 659-0670. Another company which tracks these trends is called Access Research in Greenwich, Connecticut. The government allows companies to offer a wide array of choices now, so there really is no need to widen the choices further. It would not make sense to have people invest in their homes through a 401k since these have to be liquid securities you buy every two weeks. Many people do borrow against their 401k's to pay off debt, even though that is not a great idea since it will lower your retirement returns dramatically. It also does not make sense to pay off a mortgage with tax-deductible interest with savings that is accumulating tax-deferred.

Q I have a sort of complicated and unusual retirement investment strategy question. I am 65 years old and approaching retirement. Actually, I have already retired as a Cal State University professor and drawing a pension from California's Public Retirement system (CALPERS), but I am still very actively employed as a professional classical musician and due to the unusual nature of the musicians union pension fund, I am also receiving that very generous pension while still working! Both of these pension funds are quite sound and well funded(I am led to believe) but they are both heavily invested in the stock market. In the best of all worlds, I can anticipate an excellent income from these pensions in retirement, but what if the market turns south? I have a fair amount of savings in 403B accounts which are fairly defensively invested at the moment, but are at some risk. These are a form of self-insurance for my wife as we have chosen to have no life insurance and my pensions just about disappear at my death. We have gambled on my living a long time in order to maximize my pension benefits.

My question is: should I be very conservative with these 403Bs and only be in money markets or should I be more aggressive since I won't need the money for the foreseeable future if the pensions hold up and if I live? I still have 2 daughters in college which is partly why I am still working.

Any words of wisdom you can offer would be greatly appreciated.

Thank you.

A Both the CALPERS pension and the musicians pension should be covered by the federal PBGC (Pension Benefit Guaranty Corporation). That means you are guaranteed by the PBGC to get the pension even if the stock market crashed. These are so-called defined benefit pensions, meaning they are promising you a defined benefit, come hell of high water. So don't worry about getting the money from those pensions--you will get it. You should therefore have the opposite strategy with your 403B. You should go for as much growth as possible, since that will make the difference between having a meager or great retirement lifestyle. Just realize that you are taking more short-term risk in the 403 B in order to get higher long-term returns. The other instrument you may want to look into is a variable annuity, which allows you to accumulate an unlimited amount of money in a tax-deferred account, and take it out in a tax-favored way. I have a further explanation of how annuities work and some resources to find the best ones in my book called Everyone's Money Book at 1-800-489-9929.

Q I am a "young" investor (26 yrs old) looking to make some short term $ from my stock (to purchase a house this year) and long term $ from my fund.

I have 100 shares in a stock that is expected to continue to rise through February. I've had it there for a year or so and have earned a decent return. Is a good idea to go ahead and tell the broker to sell at a level that the stock itself hasn't reached yet, but is expected to reach? I was told that that's ok but the broker didn't sound very enthusiastic about doing so. I don't want to miss the next time it reaches a plausible high.

I am trying to hold onto some money for the long-term (20 years). I invested 1,000 in a "socially/environmentally responsible" fund and for the first 8 or so years actually lost money on the investment. I have finally recouped my investment and have begun to make a small amount on it. Should I get out of this fund and go into another "socially/environmentally responsible" fund or something else? I have strong feelings about not putting my money into certain energy areas (oil, coal, nuclear) and HMOs.


Washington, DC 20009

A There is nothing wrong in putting what is called a limit order at a particular price. With the market shooting up every day, chances are the order will go off. There are only two problems with this approach: First, you will pay capital gains tax on the profit you realize when you sell, whereas you won't pay any taxes as long as you don't sell the stock; Second, you may beat up on yourself if the stock soars further. So make yourself a promise in writing before you put in such a limit order that says, "I will not complain if the stock price rises dramatically after I have sold it"--or something to that effect.

On your second question, there are plenty of good socially responsible funds out there--there is no reason to suffer with a bad one. Each socially responsibility fund has a slightly different definition of what is responsible, however, so get one that matches your interests. I have a whole section in my Everyone's Money Book (1-800-489-9929) on socially conscious investing, and to help you out, here is a small sample of resources from that section. Franklin Research and Development (617) 423-6655 researches individual stocks for social responsibility and financial soundness. You might take a look at the Parnassus mutual fund (800) 999-3505 and the Pax World fund (800) 767-1729. A good look on the topic is The Social Investment Almanac by Peter Kinder and Steven Lyndenberg, published by Henry Holt (212) 886-9200.

Q I am 47, income in the lower middle class (25,000-30,000), but with savings of around $110,000 and house equity of $40,000. I would be happy with returns of 7% to 12%. I'm not a big spender, and I save as much as I can. I have no debt other than mortgage debt. Call me a throwback to The Great Depression generation! I am afraid of a prolonged bear market. Right now, I have $32,000 in a mixed mutual fund (small. medium, large caps, domestic and foreign). I am facing a decision of what to do with the balance of 66,000 of the funds I have for investing. Should I go with the safe and low return of US Savings Bonds, Treasury Bills, or even bank CDs? Or should I put some Blue Chips in the mix? My investment horizon is 10-15 years, save for $20,000 that can be gotten to without too much trouble if needed. Thanks for your help!

A I think you are being too conservative with your money. You can get much better returns by taking slightly more risk. For example, you might try a short-term bond fund for your $20,000 that you need immediate access to. These funds now yield about 6-7%, are very safe, and you can write a check on them to get at your money any time. Most major mutual fund companies offer them. For the $66,000, you should go for some high-quality blue chip funds that have a good track record. If in fact your investment horizon is 10-15 years, you will clearly come out better than by keeping the money in low-yielding CDs or Treasuries. Just promise yourself in advance, and preferably in writing, not to panic if the market goes down for a short time, particularly if the fall is sharp. Don't put all the money in one fund--mix it up with funds of different styles and that will lower your risk even further.

Q My husband(28) and I(26) have been contributing between 4 and 10 percent of our gross annual income to our 401K plans (with the majority invested in higher-risk mutual funds) for the past 4 years. We are willing to take on significant risk since we have no children as yet, so college and retirement are many years off. However, would we be wise to temporarily reinvest our current funds in low-risk, low-return bonds in anticipation of a market swing, with the intention of reentering a depressed market in a few years? Or would we be better advised to wait out the latest down-turn, letting our money ride until the next major upswing, when we will be closer to retirement age? In addition, what resources do you recommend for novice market-watchers like us whose sole investment portfolio contains a few miscellaneous stock and bond certificates, our 401Ks and IRAs, and our home? We would like to take a more active role in our investment decisions, but we have very little knowledge of investment basics. Thank you.

Aimee Koval Jurista

A Since you are young, you should definitely keep investing in higher-risk, higher-return choices in your 401k and ride out any downturn. Many analysts have been predicting a market fall for several years now, and look at what they have missed! Market timers are usually wrong, so it is best to ignore most of them and just keep investing regularly. If the market does fall for a short time, you will be buying more shares of good quality stocks and funds at far lower prices, so that's not too bad either! That companies your funds are investing in are growing, so over the long run, that means your investment will grow as well.

As far as resources to help you learn about all of this, (without sounding too self-serving), I think the material I have assembled could really help you. My book is called Everyone's Money Book , and it has 825 pages of explanations of all things financial, not investing, but also getting lower interest credit cards, getting cheaper insurance, college scholarship money, tax-cutting strategies and an awful lot more. I have also have done what I call the Master Your Money audio tape series, which is 6 one-hour tapes on all aspects of personal finance. I have also produced a 1 1/2 hour videotape called Getting Your Financial Act Together which I think might be helpful. There is also Everyone's Money Software, which has 36 worksheets to help you apply all of this advice to your own situation. Finally, I wrote the Dictionary of Finance and Investment Terms which defines all of the complicated language of finance in easy terms. You can find out about all of these things by calling 1-800-489-9929. (Sorry for the commercial, but you asked for help, and I really think some or all of these things might be useful, and you can return them within 30 days if you're not satisfied in any way).

Q What is an ideal investment strategy for this overly rated market. My age is 28 and willing to take some risk.
Milwaukee, WI

A Since you are 28, you should put together a diversified portfolio of mutual funds with good long-term track records. Don't worry about short-term volatility. Your biggest risk is not investing at all, not losing money in the investments your are in. Mix up the styles of the funds you are in, so some kind will always be doing well. Also make sure you invest automatically, by signing up for an automatic investment plan with a fund that will take $50 or $100 automatically out of your checking account each month. If the market falls, you will be buying more good investments at cheaper prices.

Q Hello. My question is how do I make up my mind? I've read the mutual fund books and understand Morningstar ratings. Frankly though I'm overwhelmed with all the information available. I'm 31, make a decent living, no family yet and have a fairly strong stomach for risk. Is there a way to simplify some of this and get started without studying every number on every prospectus?

Tim Britt
Atlanta, GA

A You are obsessing too much about being in the right mutual fund. The most important decision is to get started in the first place and then following through. The next most important decision is to allocate your assets correctly. Over the long term, your asset allocation is far more important than which specific stock fund you are in. At 31, you should have most of your money in stocks because you have a wonderful asset on your side--time for the investment to work out. Don't waste that asset over-analyzing every possible choice you could make. After you have looked at funds' records, expenses and styles, just go for it and don't beat up on yourself that you got the wrong fund if some other fund you were looking at goes up more than the one you picked!

Q I am disabled by Social Security with a terminal Leukemia diagnosis. S/S is the sole household income excepting an annuity of $116/mo. I have obtained a Viatical Settlement (advance payment of life insurance) in the amount of $38,000. What is the best choice of investment vehicle(s) to achieve the goals of survivor income and inflation-beating growth?

A You should invest the viatical settlement in a short-term bond fund that will give you a yield of about 6-7%, and is still safe. You can also get at your money any time with a check. My favorite no-load short-term bond fund now is Strong Short-Term Bond Fund, now yielding 6.9%, at 1-800-368-1030. That should give you a much higher return than a savings account or CD, with a very low risk level.

Q In his latest book, "The Future of Capitalism," Lester Thurow says it is "certain" that the persistent US trade deficit with Japan will eventually trigger a run on the dollar and a crisis in world financial markets. Is there a way to defend against this sort of currency risk, within 401 K's limited to dollar-denominated (equity or bond) assets? Income-averaging investment is said to be "conservative," but with new global currency/derivative risks, what is the best way to try for 10-15% average gains over 5-10 years (for retirement)? Frontline show seems to say nothing is a good bet! Thank you. C.

Ithaca, NY

A If anything, the dollar has been getting much stronger, not weaker, for the past two years. Japan is the country in crisis right now, not the USA. The dollar has been getting stronger despite our trade deficit with Japan and China, which is actually bigger now. If you want to hedge yourself against a dollar drop, however, buy shares in foreign companies. They are denominated in non-dollar currencies, which would rise in a value if the buck falls. An even purer play is non-dollars bonds, which you can either buy directly or through a global bond mutual fund. You can also put your money in foreign currency money market funds denominated in francs, marks, yen and pounds. I think Fidelity offers all of these, along with some other fund companies. Just realize that these money funds usually pay lower yields than American funds.

As you can tell, I don't worry about a run on the dollar the way Thurow does. My question for him would be: If investors are running from the dollar, where are they going to go? Gold, which has been in a 17-year bear market? The yen or Swiss franc, where you earn less than 1%? The mark, where the German economy is besieged by 10% unemployment? I don't think most people have much choice for safety, liquidity and high yields than the dollar today.

Q Based on the airing of the Frontline documentary what criteria should I look for to "interview" an investment counselor. I would like for them to look at my current investments, my expenses and my goals.

A There are several different kinds of investment counselors, depending on how they get compensated. There are stock brokers who only make money on commissions when you buy or sell something. There are fee-plus-commission advisors who charge you a smaller fee but also make a commission on everything they sell you. For a list of those in your area, contact the Institute of Certified Financial Planners (1-800-282-7526). And there are fee-only planners who only charge you fees, but make nothing on whatever you buy or sell. Of course, the less a planner makes on commissions, the higher his fees have to be to make up the difference. You have to decide which system works best for you. If you might be interested in a fee-only planner in your area, you can get a free list of them from the National Association of Personal Financial Advisors (NAPFA) at 1-800-366-2732.

Q Hi. My name is Kevin Stanton. I am a 24 year old college student graduating this summer. Once I get a job I would like to put money in the stock market I have read Peter Lynch's book Learn to Earn and have started another book he wrote called Beating The Streets. What is some advice that you would give a beginning investor? I plan on investing for the long term. I will be putting money in on a regular basis such as bi-weekly or monthly. Also are there any computer programs that I can buy or download off the Net that will help? I would like to start researching stocks now so I will kind of know a little about stocks that I would purchase when I have money to invest. Were should I start? I am sure I will have more questions later will it be OK to send more to you. Thanks a million.

Kevin Stanton
Denville NJ

A Now is a great time for you to get started learning about investing. There are many books on the subject that might help you get started--I've got a list of them in my book Everybody's Money Book (1-800-489-9929), which also explains the basics of investing in stocks, bonds, mutual funds, etc. There is loads of material on the Net to help you learn about investing--you might just start with the Finance section of CompuServe or AOL or put in "stock market" or "money" in a Web Browser and you will have more info that you can stand. I like your idea of investing monthly or bi-weekly because that is the best way to accumulate money long-term. One fund you may want to take a look at is the no-load Stein Roe Young Investor Fund at 1-800-403-5437, which was up 36% in 1996 and also explains investing to shareholders with easy-to-read literature. You're off to a great start by wanting to learn about this stuff!

Q Hi,
I've just graduated from college and is now job-hunting. I'm 23 this year and I plan to start investing my money in the mutual funds or stock market. I've been saving since high school and throughout my college years from part-time jobs. All my money is now in a money-market savings account at a bank. The returns from the interest rates are pretty slow and I can't wait forever. I have close to $6,000 to invest and that's my entire life savings as of now. I figured I'll have more to spare when I earn a stable income from my new job. Please advise on the best options for me right now as a head start. Thanks.

Toledo, Ohio

A The money-market savings account is the worst place for your stash, because it will earn the lowest returns. Since you are 23, you can afford to take the risk, because you won't need the money for a long time. The first step is to learn about investing a bit, and then start with a good mutual fund or two, which you can easily afford with the $6000. Take a look at the previous question where I mentioned the Stein Roe Young Investor Fund. When you get the job, set up an automatic investment program so the money will go in before you can get your hands on it.

Q I have been learning more and more about stock options and have some money that I would be willing to risk on this type of investment. What is your opinion about options and do you have any advice before I invest...or is the risk too high. Are calls better than puts in today's market? I would appreciate any advice.

A You can definitely make money in stock options but you should understand what you are doing before you start. I have a whole chapter in my book Everybody's Money Book (1-800-489-9929) which will at least give you the basics. I also list several books about options at the end of my chapter. One example: Getting Started in Options by Michael Thomsett, published by John Wiley at (212) 850-6000. You buy a call option when you expect a stock or stock index to rise and you buy a put option when you think they are going to fall. Remember that commissions can be a considerable cost when you play in options because you pay a fee whenever you buy or sell, which tends to be frequently. Also remember that time can be your friend or foe with options. If you buy a call option by paying a premium, you need the stock or index to rise before the option expires. Just rising is not enough, because if it rises after the option expires, you still lose your entire premium. In the same way, if you sell a call option, you want time to expire before the stock or index rises so you get to keep the premium without having to give anything up. You can also use options to hedge your risks of a market downfall. If you want to get serious about options, hook up with a broker who has lots of experience with them--his commissions will be worth paying.

Q What is the rule of thumb for cash-on-hand? (How much?)

Newington, CT

A I like to say you should have 2-3 month's earnings readily available in a liquid account like a money market fund or short-term bond fund to pay for emergencies. Some advisers talk about 6 months' wages, buy I think that is excessive and unrealistic for the average family.

Q I truly think that the Stock Market is overvalued and will soon correct itself. If the Stock Market becomes bearish people are going to get out and then what? Where do you think they will go? I'd like to get there ahead of the rush I'm 43 years old and am holding about $110,000 in Houston Industries stock left from an old 401K. It's done moderately well since I left HI in August and I'm unsure whether to hold on to it and get into something else. But what? The utility industry is facing deregulation and that may negatively affect this stock BUY!!!!, in the long term, even if the electricity market is opened to anyone, the utilities still own 70-80% of all the generation capacity in the USA and will still be the major producers for the short term. Also there is talk of the PUC freezing electrical rates to allow the utilities to recoup there stranded costs. If this occurs, utilities can greatly increase their profitability but cutting costs and selling assets (they are way over employed by as much as 30-40% and own large tracts of valuable property). Should I stay put or move on?

Dwight Clement
Houston, TX

A I am worried that you have too much of your assets tied up in one company's stock, in this case Houston Industries. This often happens, because the only way people save is through their employer's savings plan, and they get a large chunk of company stock as part of the deal. So I would definitely sell some of the Houston and reinvest in a more diversified portfolio of stocks, bonds and cash. You want some of your assets exposed to other industries that have nothing to do with utilities like health care, or technology. If the market falls, people would probably switch to money market funds, even though they only yield about 4-5%--at least they are safe.

Q I plan to retire in three years with a small pension (35k per year); I will have about 200k in an insurance company tsa. I have, by today's prices, about 150k in mutual funds; about 40% is in 20th c ultra, another 30% in 20th c select, about 15% in government bond funds, and the remaining 15% in various other mutual funds. My son thinks I should, at my time of life, shift much of my money from my more aggressive funds, particularly ultra, into bond funds, such as strong govt. What are your thoughts?

A I think you will do far better in the long term in 20th century Ultra and Select than in any government bond fund. It is really a question of volatility. If you think you might panic if Ultra plunges temporarily, and you would sell when it is way down, then sell some now. But if you pledge to yourself that you will hang in there through any rough patches, hang on. (Try writing yourself a note saying "I will not sell Ultra if the market plunges." that you can pull out when you need it.) Funds like Ultra and Select are buying companies with rapidly growing earnings, and that means that your earnings will grow as well in the long run, though the trip may not always be as smooth as it has been the last 6 years. You insurance company TSA is probably already invested in bond-type securities, so let your mutual fund do the aggressive investing for you. Just make sure you have enough income from TSA and other conservative funds to live on when you retire.

Q Is Intel a good buy now? Pls.advise. Thank you

Toyin Oladokun
Century City, CA

A Intel has had a great rise, and had a great earnings report this week. I think it will do well over the long term because of their dominant position in chips. Just realize that the stock will be volatile in the short term.

Q Hello,
I'm a 58 year old computer consultant who is moving the 401K funds from my former employer to my Schwab account. I'm moving about $133,000 which is currently in cash. This amount is about 70% of the total financial base my wife and I will need to count on in about six years. What's a smart investment mix, considering what's currently going on?

Thanks very much!

Rich Schulthess
Stone Mountain, GA

A Since you are 58, you still have plenty of time for that money to grow. Having it in money funds is the worst possible place, because you will only be getting 4-5% and have no growth potential. With $133,000, you could put together a well-diversified portfolio of stock and bond mutual funds. Don't spread yourself too thin, however. Have about $20,000 in each of six or seven total funds. This is the money you're going to be living on for the rest of your life in retirement, so you want to maximize what you've got now while you're still earning a salary. I list loads of resources to help you find some good funds in my book Everybody's Money Book (1-800-489-9929). One idea is the No-Load Fund Investor at (1-800-252-2042). Since your money is at Schwab, take a look at their Select list as well.

Q Please discuss the alternatives to stocks and mutual funds when a Bear market is expected. Wouldn't Bonds be best?

Gary Struthers
Sausalito CA

A Bonds would not necessarily do best in a Bear market, because one of the factors that would bring on the Bear would be rising interest rates, which would hurt bonds. As boring as it may seem, the safest place to hide in a true bear market is a money market mutual fund, which keeps your principal intact and you actually benefit if interest rates rise because you earn higher yields. There are various strategies to profit from a bear market like buying put options and selling stocks short, but that is probably too risky for most people.

Q I just have some quick questions: The stock market works best in the long term, but what happens when your investment/stock collapses? are you "busted" and lose your investment? Where do you find these long term stocks? (i.e. IBM) are local utilities good long term investments? what exactly are "blue chip" stocks, and when/if should you sell?


A You lose your investment if you sell it at a loss. The big losers of the crash of 1929 and 1987 were the people who sold out at the bottom. You would lose if your company goes out of business, which is highly unlikely if you buy big blue chips like IBM, GM, J.P. Morgan, Proctor and Gamble, Exxon and so on that have been around forever and are extremely strong financially. No one is ever going to force you to sell--you have to have the courage to stick it out through bear markets, which may be easy to say buy difficult to do. You should sell your blue chip when you need the money, see a better investment opportunity or things are not going well at the company. Local utilities can be a good investments for the dividends they pay, and some capital gains of their earnings rise. Just realize that utilities are very sensitive to the rises and falls of interest rates--they rise when rates fall and vice versa.

Q how many funds are enough? I own 13 funds. I think I have good diversification. The funds I own are: new economy (American funds) new perspective growth fund of America fundamental investors euro-pacific growth ica fidelity low priced stock fidelity blue chip growth heartland value strong schafer value northeast inv trust ( h.y. bond) pbgh growth vanguard health care.

bill wagner
clinton twp

A You clearly have a well-diversified portfolio. 13 is plenty. What I also like about your portfolio is that is balanced between value funds like Heartland and Schafer and growth funds like New Economy, Blue Chip Growth and PBHG, along with some international funds like Euro-Pacific. If anything, you might want to add a bit to the international exposure. But overall, may I present you with a pedestal to step onto for other investors to emulate!

Q I have shares in a High Income fund. It has a 5 star Morningstar Rating. I was wondering in general, if there is a sharp market decline, bear market or whatever, how would this affect the valuations of the instruments most commonly held in this fund? BBB, CCC etc? I have heard these instruments referred to as "hybrid" securities.
Thank you for your time.
Jeff DeBernardis

A A sharp stock market decline would negatively affect the value of all junk bond funds. Junk bonds are high yielding bonds that act more like stocks than bonds, and therefore are negatively affected by falling stock prices. These bonds are issued by either smaller, less mature companies, or older companies that have run into some kind of financial difficulty. If the economy goes into a recession, these kinds of companies are more vulnerable to a downturn in their business, and therefore may default on their bonds, which of course makes the value of those bonds and the funds holding them plummet. In a recession, Treasure bonds do best because no one is worried that Uncle Sam will ever default. Junk bond funds have far outperformed Treasuries so far in the 1990's because the economy has been strong and defaults have been rare. The last time junk bonds got hurt was in 1990, when the economy was in recession.

Q Briefly ... I bought a stock at $49, it went to $59 a week later, then dropped rapidly to a low of $8. It's now back at $33. In general is it wise to sell if the stock ever gets back to what I paid for it, or is it prudent to still hold on. I'm (obviously) a novice at this sort of thing. Thanks.

Jim Buzinski
Los Angeles CA

A You have yourself a very volatile stock there! Hot stocks often jump quickly right after they are issued to the public for the first time, and then fall back when the spotlight moves onto another issue. That may have happened in this case. One strategy you can use is to put in a so-called stop-loss order to sell the stock automatically when it hits a certain price. For example, you could have put in a stop at $55 which would have guaranteed you have profit--it would have gone off about a week after you bought the stock. If you still think the stock has a bright future, you can hold on for what will clearly be a wild ride. Remember there is never anything wrong with taking a profit if the stock rises back above where you bought it originally.

Q hello!
I was dismayed to learn that my former employers savings plan will only disperse my after tax/non-penalty funds to me if I rollover my total plan to another IRA. this way, they'll cut a check to me for the after tax funds (and I won't be penalized) and a check to the IRA I choose to rollover the $10,000 to. my question is : which mutual fund would best as an IRA that I'll dump the money in for 30 years? thanks

Joel Benitez

A Your employer should be able to roll over all of your account balance without penalty to a so-called rollover IRA which can set up at brokerage firm or mutual fund company. The company you roll the money into can take care of a lot of the paperwork. Just make sure the money goes directly from your company's plan to the rollover IRA. This is called an institution-to-institution transfer. If your company cuts you a check, they have to withhold 20% of your account balance and give it to the IRS--not a good idea! As far as where to invest the money, choose a good growth mutual fund with a solid long-term track record and you'll do fine. Remember to keep adding to the account as well.

Q Hello,
I am a recent college graduate in the process of job seeking. I amassed $5000 in graduation cash and am wondering where to get my feet wet in investing. I would say that I am not afraid of risk at this point in my life (23 years old). I have been looking into the matter and quickly found myself overwhelmed with the myriad of strategies that I read about (MONEY MAGAZINE being one of my sources) Any suggestions would be greatly appreciated.

A Being from MONEY, I hope you aren't too overwhelmed! The point is not to look at every potential investment possibility out there, but to pick a few ideas that can get you started. One fund I've mentioned before that is designed for young people getting started is the no-load Stein Roe Young Investors Fund at 800-403-5437. They not only had a 36% return in 1996, but they give you a lot of literature to help you understand investing. The most important thing you can do is actually make some investments and learn the process--it will soon become addicting. Don't obsess too much about whether or not you got the right fund. At your age, you should go for growth of capital--you don't need income from your investments for many years.

Q I don't understand the concept of "selling short". Could someone please explain this? Thanks

Redmond WA

A Selling short means that you borrow the shares of a company from your broker, and hope to buy the shares back at a lower price to replace the shares you borrowed. It is a way to profit from a stock price decline. So say you sold 100 shares of XYZ short at $50. Your broker would borrow 100 shares from another customer or the firm's inventory. If the share price fell to $40, you would "cover your short position" by buying the shares in the open market at $40. You would then replace the loan from your broker with $40 shares, and keep the $10 per share profit. If, on the other hand, the share price rose to $60, you might have to sell at a loss. This is what is know as a "short squeeze", because people who have shorted the stock can't take the pain any longer and they have to go out and buy the shares to end their suffering.

Q Experts keep saying the market is inflated. What criteria are they judging this by and how can we tell when it's in the right place?

Betsy Robbins
Chicago, IL

A Experts say the market is inflated based on several measuring sticks they use to compare this market to all other markets in history. They talk about the price/earnings ratio of stocks, which is now about 18 on average. That means that the price of a share is 18 times the company's earnings. Historically, PE ratios have ranged from as low as 6 to as much as 20. They also look at the dividend yield of the average stock, which is now about 2%. The lower the dividend yield, the higher the stock price. The dividend yield historically has ranged from about 2% to about 6%. There are several other indicators they use, like price/book value, price/sales, etc., all of which are at the high end of their historic ranges. There is no such thing as the "right place," but there are historic averages which show that stock prices are way up there right now.

Q I've held some McDonald's stock for about 16 months and am somewhat disappointed in its performance. What's the common evaluation of McDonald's by the pros--short and long term?

Overland Park, KS 66210

A McDonalds has been a great long-term growth stock. Recently, it has run into a slowdown because the U.S. is pretty well saturated with fast-food joints, both from Big Mac and competitors like Wendy's, Burger King, Roy Rogers, etc. Most of Bic Mac's growth is coming from overseas, which is not saturated at all. McDonalds has also tried to roll out some new products like the Arch Deluxe which have not been raving successes. So the company is clearly not he hot growth stock it used to be, buy it does have growth potential, particularly overseas.

Q What to do with commercial & residential property with no mortgage? Good income and little cash in bank? Property I received in inheritance. What is my best return on this?

Thank You

A If you think the commercial and residential property will appreciate, it might make sense to hold onto it. If you do not think real estate has much appreciation potential where it is located, I would sell it and reinvest in stocks and mutual funds with far more growth potential and more liquidity. You can also make money from the property by fixing it up and attracting a higher class of tenants who will pay higher rents. But that might take more time, money and expertise than you have. I would not take out a mortgage on the property to invest in stocks, however. That is too risky because you have to make the mortgage payments every month, and you don't know how the stocks are going to do month-to-month.

Q The alternatives to the stock market and mutual funds are Bonds, Banks, and Real Estate. If you are nervous about the stock market, where do you put your savings? And how will these 3 alternatives play out in a sustained bear market?

Sandwich, MA

A In a bear market, bonds would probably not do well because interest rates would be rising, which would hurt bond values. Real estate could be hurt depending on where it is. Real estate values are based on rental cash flow, and in a recession, rents fall. Bank CDs and money funds would be safe in a recession or bear market, as long as you stay under the insurance limits of $100,000 per account. It may be boring, but holding onto your principal and earning some interest is the best thing you can do to wait out a bear market. Then you will have cash to swoop in and grab bargains when stock prices are way down. Imagine if you had bought stocks at the depths of the 1929 or 1987 crashes how much you would be worth today!

Q I'm 34 with a wife and 3 children...I have a tremendous fear of the market, what can I do looking at an investment period of maybe 15 years for my kid's education and 25 to 30 years for my retirement to keep my investments safer but still beat interest rates offered by banks?

Southington CT

A Since you are 34, your main concern should be growth of capital for your retirement and the education of your 3 kids. If you have 15 years before college tuitions, there is no question that a well-managed stock mutual funds is your best route to capital growth. It may take a hit if the market turns down for a year or two, but in the long run, it should increase your portfolio because it is investing in companies that are them selves growing rapidly. The same is true if you have 25 to 30 years until retirement. You have a wonderful asset on your side for both goals called time, which you don't want to waste. You have plenty of time for the investments to work out for you because you don't need the money right away. The people with a problem are those with tuition bills or retirement about to hit, because they don't have the time to recover if the market plunges anytime soon. As I've said in many of these other questions, don't obsess about picking the right mutual fund. Just get started and set up an automatic investment program so you have a regular amount of money going into these funds. That way, if the market falls, you will be buying more good stocks at cheaper prices. One simple, low-cost way to get started is to buy some index funds which track the markets like the Vanguard S+P 500 Index fund (800-662-7447), which was up 24% in 1996 and beat about 90% of all other funds. Don't worry too much about safety, because that is holding you back from earning high long-term rates of return!

These answers are intended as general background and information only, and not as specific instructions or advice for investing.

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