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

DATE: MONDAY, June 26, 1995                   TAG: 9506260083
SECTION: BUSINESS                    PAGE: 6   EDITION: METRO 
SOURCE: MAG POFF
DATELINE:                                 LENGTH: Medium

TO EARN MORE, YOU MUST TAKE MORE RISKS

An article on the Money Page stated it would take about 141/2 years for a bond to mature. We have been buying $200 bonds for $100. That is only about 5 percent return on your money, which isn't very much.

Should we continue to buy bonds for our granddaughter or invest it some other way to make more interest over the next six years? I am aware that interest rates vary on bonds and may go lower now that the 4 percent guaranteed rate is being discontinued. (Not too long ago it was 6 percent.)

We realize stocks would probably be better for the next six years, but you would need to save up the money to buy stocks. I have more confidence in stocks than mutual funds. I'm also aware that the interest on bonds is tax-free if used for college tuition, but if you don't make much interest on bonds, it isn't such an advantage.

A: The rate on U.S. Savings Bonds is not as high as some other forms of investment, but it is very good for an investment that is absolutely safe - bonds are backed by the credit of the United States. To earn more, you must take more risks.

Bonds may be cashed in tax-free if the money is used to pay tuition and matriculation fees - but not books or room and board - at an institution of higher learning. But grandparents do not qualify for this privilege. You would have to put the bonds in the name of the student's parents to qualify for this benefit. You could also put the money in the child's name, but this would give full control over the money to an 18-year-old who might not use the fund for educational purposes.

With six years to go before college, you have time to invest in stocks and ride out a downturn in the market. Historically, this is the only way to achieve significant growth. Your letter, however, makes clear that you already know this.

Buying a small amount of a single stock is much more dangerous than a mutual fund would be. A mutual fund offers diversification through a portfolio of stocks, plus professional management. It is also easy to invest small amounts on a periodic basis, such as monthly. You can then become more conservative in your investing as college time approaches.

If you are not happy with this prospect, however, stick to the bonds. You can buy them routinely in small amounts, and your granddaughter would appreciate any help you can give her. But put them in the name of her parents so that the accumulated interest won't be taxed.

Hacker-proof accounts

Q: I have an account with a major brokerage firm of the kind that combines brokerage services with a checking account and a Visa debit card. I access this account by computer for making trades or getting information about the status of the account; it is only necessary to enter my password to do this. I never talk to anybody, and the trades show up later on the status screens. I receive confirmations by mail. My money market account usually is in six figures and, because this was set up as a margin account, my Visa and checking limits are several times that.

I read from time to time of the ease with which computer hackers sometimes break into supposedly high-security systems. This makes me uneasy as to the security of my own funds. I know that brokerage companies advertise that their accounts are insured up to very large sums, but I wonder under what circumstances.

My concern is primarily with the unauthorized use of a Visa number. I understand that a cardholder's liability is limited to $50 if his card is used fraudulently, but in the case of a debit card, the cardholder's money would have been paid out rather than a charge for future payment being made. This would seem to put the holder of a debit card at a disadvantage. I was wondering how this card is handled?

A: Brokerage houses carry private (not government) insurance of up to $2.5 million to cover clients in case of collapse of the brokerage firm or fraud by someone working for the company.

Ryland Hubbard, manager of the Roanoke office of Merrill Lynch, one of the nation's biggest securities brokers, said debit cards associated with cash management accounts have a liability limit of $50 in case of fraud, just as credit cards do. So you should have no worry on that score.

He said Merrill Lynch is still studying and testing systems that would allow clients to access their cash management accounts totally by computer, just as you do. He said the company has not yet introduced the system because it shares your concern about breach of security by computer hackers.