
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, May 22, 1995                   TAG: 9505230008
SECTION: MONEY                    PAGE: 8   EDITION: METRO 
SOURCE: 
DATELINE:                                 LENGTH: Medium

EQUITIES BEST OPTION FOR THIS INVESTOR

Q: I have $2,000 to invest. My options are to add to an existing Janus Mutual Fund IRA, set up a variable-rate IRA certificate of deposit at 7.31 annual percentage yield, or pay $2,000 additional principal payments on my $52,000 14-year mortgage at 6.75 percent.

I am also considering changing my investment percentages on my 401(k) from 70 percent fixed, 20 percent bonds and 10 percent stock to 100 percent fixed. When would be the most advantageous time to switch? I am 45 years old.

A: The facts you present are too limited for a fully informed recommendation by a financial planner, but James E. Pearman Jr. of Fee-Only Financial Planning in Roanoke reviewed your situation and questions.

Pearman, who is both a certified financial planner and certified public accountant, assumed you have at least 15 to 20 years until retirement. He also assumed you own the Janus mutual fund that is called simply Janus Fund, which would acquaint you with the market risks associated with owning equities. You do not say how much you have invested in Janus or the size and allocation of your portfolio. But a 70 percent allocation to fixed investments in your 401(k) suggests that you have low tolerance for risk.

You would certainly seem to have a long enough investment horizon that a larger portion of your portfolio should be allocated to equity investments, Pearman said.

Based on the choices you outlined, Pearman would recommend that you invest the $2,000 in the Janus IRA. He would certainly expect this fund (with a 10-year average annualized total return of 15 percent) to return more than the 6.75 percent you would achieve by prepaying your mortgage. Also, Pearman said, the mortgage interest is tax deductible if you itemize, and the IRA will continue to grow tax deferred.

If you change your 401(k) allocation, Pearman said you should allocate at least 50 percent to 60 percent to stock - assuming it is a diversified stock portfolio and not just company stock. He would put the balance in fixed return and bonds.

At your age and assumed time to retirement, he said, you would expect that equities would give you the highest return even if the trip is a little bumpier. But Pearman also noted that we do not have any data on how the investment managers of your 401(k) funds have performed, and that could certainly have an impact on the decision.

by CNB