Q. We're both 77 years old and don't have any major problems. Eight years ago we sold a home and put $100,000 in mutual funds. Then eighteen months ago we moved it to Paul Merriman's Managed Assets Portfolio Service. This is a result of going to several No-Load mutual fund conferences.

Here's my question:

Our $100,000 in 1987 is now worth $140,000 and we are, generally, pleased.   We take no income from this because we haven't needed it.   Are we on a good track?   His charge is 1.75 percent a year on the first $100,000 and 0.875 percent on everything else?

Is his charge too high?   Are there others doing a better job?   Does anyone rate these pros?   We have no debts.

---R.K., Fredericksburg, TX

  

A. From the information you provided, there is no way to know: Merriman has managed the money for only 18 months of six and a half years. What we do know is that the combination of investments has produced a compound annual rate of return of about 5.3 percent over the six and a half years--- better than nothing but less than average.

The real question is whether your investment return can stand the level of expense it is carrying. Merriman, like a growing cadre of financial advisors, charges a fee for managing mutual fund investments. This means you are subject to TWO levels of fees: the expenses in the funds and the expenses of the advisor who selects the funds.

Long term, repeated studies have shown that it is difficult for investment managers to add enough value--- extra return--- to cover their expenses. It is particularly difficult to justify the higher levels expense levels of a second manager.

You can understand this by considering the differences in rate of return for balanced mutual funds over the last five years. In the five year period ending in November, the 50th percentile fund had provided an annualized return of 7.9 percent. Funds in the top 10 percent had provided a return of 9.7 percent, only 1.8 percent more. While you have the absolute certainty of a 1.75 percent annual expense for fund selection, Mr. Merriman has only a 10 percent chance of selecting the funds that will recover his fee. This is very much like playing on a roulette wheel covered with zeros: the house wins altogether too often.

It is important for you to understand that there is nothing evil here. Managers may need to have such charges in order to have a business that works. What isn't being dealt with in this pyramiding of fees is that the investor pays regardless of results. That's one reason there are so many disappointed bond fund holders out there.

My suggestion: consider an alternative that is less expensive... such as a balanced fund.

  

Q. In a recent column on early retirement you wrote, "Your greatest unknown is the availability and cost of medical insurance as an individual."   I am currently employed and covered by a health plan.   I am in my mid-50's and have a wife who is no longer working (and has no separate coverage).   We are both in good health with no previous or current health problems.   I am contemplating retiring within the next few years, before I reach 60.

Is there a way to get health insurance, even if the rates are high?

Can you suggest where I might get information regarding available options?

---D.D., Windcrest, TX

  

A. The first step is to make certain that you exercise your rights under COBRA: this will allow you to continue your coverage through your former employer for eighteen months ( the period can be extended under certain circumstances to 36 months) but you will have to pay it for monthly.

After your eligibility for group coverage ends you will also have the option of continuing with the same insurance company in an individual policy. These policies usually have severely reduced protection and tend to be expensive but are a good last resort.

Some people, due to their vocation or affiliation, may be eligible to obtain a group health insurance policy through an association. In many areas, for instance, you can join an association of independent businesses and obtain coverage through the association. After that, you'll be looking for a non-group policy from the companies that sell to individuals as well as groups. Some of the "Blues"--- Blue Cross/Blue Shield--- in different states have periods of open enrollment for individual policies. You should check those out. Similarly, many HMOs have open enrollment periods.

Finally, if you end up looking for an individual policy, consider the deductible options very carefully: this is one area where changing from a $300 to $1000 or $5000 deductible can reduce the cost dramatically.

For a broad overview of your options, get a copy of "Health Insurance: How to Get It, Keep It, or Improve What You've Got" by Robert Enteen, Ph.D., a $12.95 paperback from Paragon House in New York.