Answers to the Major Concerns That Affect Your Finances

June 1, 1997
An important decision investors should make before they commit their money is to know how much risk they are willing to take to meet the goals (college funding, purchasing a home, retirement, etc.) they hope to achieve. The quiz below will help you fathom the answer.

Hugh F. Doherty, DDS, CFP

What type of investor are you?

An important decision investors should make before they commit their money is to know how much risk they are willing to take to meet the goals (college funding, purchasing a home, retirement, etc.) they hope to achieve. The quiz below will help you fathom the answer.

A. I expect to reach my investment goal in:

1. Less than 5 years

2. 5-9 years

3. 10-20 years

4. More than 20 years

B. Most of my investments are in:

1. Checking accounts, savings accounts, CDs

2. Money market funds

3. Bonds or bond funds

4. Stocks or stock funds

C. Higher-returning investments can help you overcome the effects of inflation, but generally involve higher risk. My attitude about inflation, risk, and return is that:

1. I only want to maintain the amount I invested and don`t care if my money grows.

2. I will be satisfied if my investments keep pace with inflation.

3. I will accept moderate risk for the opportunity to have my investments moderately outpace inflation.

4. I will accept significant risk for the opportunity to have my investments significantly outpace inflation.

D. If I invest in a bond fund, and it and other investments of the same type are performing poorly, I will change investments in:

1. Less than 6 months

2. 6 -11 months

3. 1-2 years

4. More than 2 years

E. If I own shares in a stock fund that has lost 15 percent of its value over the past two years, about the same as the overall stock market, I would:

1. Sell all of my shares

2. Sell some of my shares

3. Hold my shares

4. Buy more shares

F. I would prefer the portfolio that gives my $10,000 investment the potential, over the course of one year, to achieve a:

Best case or Worst case

1. $200 gain $0 gain/loss

2. $800 gain $200 loss

3. $2,600 gain $800 loss

4. $4,800 gain $2,400 loss

Add up your score and compare to the profile below:

(1-7) SLEEPING MONEY - Your money probably is at risk from inflation, especially if you have long-term financial needs. You may need to start thinking like an investor and add an element of growth, unless your goal is very short-term.

(8-12) CLOSE TO THE VEST - You want to feel your hard-earned money is safe. A diversified portfolio with income and growth-oriented funds could help you stay ahead of inflation.

(13-18) BUILDER - Your goal is to make good money on your investments while keeping an eye on your principal. Stock funds designed for growth and income could play an important role in your portfolio.

(19-24) ACCUMULATOR - You are an aggressive investor with a high tolerance for risk if there is potential for big returns over time. Domestic and international stock funds probably are your key to long-term success, but you probably also should own income-oriented funds to add some stability.

Fund the Funds

Investors struggling to pick from among the 8,000 stock and bond funds on the market can simplify the task by choosing a "Fund the Funds." These investments own shares in other mutual funds and boast several advantages: simplicity and diversification.

Only one thing is generally missing - good returns. "I don`t rule out the possibility that, actively managed, `Fund the Funds` could be a good package," said Don Phillips, president of Morningstar, Inc., the fund trackers from Chicago. "I just haven`t seen anybody do it right yet." The group is poised for explosive growth, as fund companies reach out to novice investors and others just looking for simple investment choices. Charles Schwab and Company recently started three "Fund the Funds" - Growth Allocation, Balanced Allocation, and One Source Portfolio International. These funds invest in offerings from companies like Twentieth Century; Invesco; Janus; and Warburg Pincus.

"Fund the Funds" (multifunds) are intended to offer investors one-stop shopping while giving them broad-based exposure to a variety of markets. They mix U.S. stock and bond funds and dabble in overseas stocks. Several own shares in intermediate-term bond funds, and one mixes various types of bond funds. Most are actively managed, so they can buy shares of any mutual bond fund. Diversification is the advantage. A single "Fund the Funds" can own shares in a dozen other funds, including some that otherwise are closed to new investors or require big initial investments.

Hugh F. Doherty, DDS, CFP, is a national lecturer and CFO of Doctor`s Financial Network and financial advisor to the health-care profession. For personal financial consultations and information about Florida workshops, call (800) 544-9653.

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