Q. My wife and I just sold our higher priced home and purchased a new smaller home--using your advice since we are both 70. We have paid for the new home with cash and have over $50,000 we need to invest. We have several CD's and IRA's paying good rates but would like to another route in maybe mutual funds. Any advice? We have ample income for retirement and fairly good medical insurance but would like a little more income for travel, etc.

---S.B., Dallas (by e-mail)

  

A. Shopping for certificates of deposit can be pretty rewarding these days, with yields over 7 percent. That's the first place you should go without any other investing experience. You can find lists of high yield offers on both www.banxquote.com and on www.bankrate.com. After that, I'd look into buying shares of Vanguard GNMA. Top rated, routinely at the top of the performance heap, and with a low expense ratio, no sales commission, and a minimum investment of only $3,000, this fund is hard to beat. In my regular study of government funds versus a 5-year Treasury, Vanguard GNMA is one of a handful that does better. You can get more information by calling Vanguard at 800-662-7447. The trailing 12-month yield is a bit under 7 percent.

Is it possible to get higher yields?

Yes, but it helps if you have a bit more investing experience to ferret them out. Let me give you a few examples. A recent Salomon Smith Barney report on U.S. closed end funds identified BlackRock 2001 Term Trust (ticker BTM), a fund that will be liquidated on June 30, 2001, as having a potential return to maturity of 14.31 percent. The same report also identified MFS Intermediate Income Trust (ticker MIN) as a good holding with a current yield of 9 percent.

One reason the yields are so high: the funds are selling at a discount to the actual asset value per share.

  

Q. We are 56 and 52, planning to retire next year. Our retirement funds are managed by an advisor at a rate of 0.20 percent every quarter. He's helped us save and build from $255,000 in 1993 to our current $600,000 in 2,000. He would like to continue to manage our funds (all in various mutual funds) after we retire. I have owned/traded stocks for 15 years, keep up with the financial news and am considering doing our own fund management. My question is two-fold. Are we paying too much for an advisor to do something we could be doing? Is he much more aware of what's going on in the marketplace than I am if I'm reading financial news and checking out various websites a couple days a week? Our only expense is a $160,000 mortgage that will be paid off in 2005. We anticipate living on $60,000 a year in retirement.

---C.J., Minneapolis, MN

  

A. This is what I call an "Iceberg Question"--- there is a lot more going on but it isn't visible. First, unless a source of income has not been mentioned, a portfolio of $600,000 won't generate a sustainable income of $60,000. If you have other income (from an early retirement buy-out, disability, etc.) of about $30,000 a year, then it would be reasonable to expect $30,000 a year from your nest egg. If you don't have that much income from other sources, then you need to delay your retirement.

If your advisor has been fully informed about your plans and has told you that you can safely withdraw 10 percent a year from your savings, then you need to drop him and get one with some knowledge.

Similarly, while an advisory fee of 0.80 percent a year for a $600,000 account is on the low side, it has to be added to the ongoing costs of the mutual funds in your account. If they are typical funds, the total cost of managing your investments could be around 2.0 percent a year. In my experience, it is difficult for an advisor to overcome an expense level this high.

I am reluctant to suggest, wily-nilly, that most people can do better for themselves. What I believe is that a conscientious program of passive investing is likely to do better than about 70 percent of all paid investment advisors. This does not happen because financial advisors are dimwits and anybody can do better "in their spare time, at home." It happens because the investment community consistently prices its advice above the level of benefit delivered.

Has your advisor served you well? It can't be known from the information given. What we can do is see how the same $255,000 would have grown if it had been invested in a number of funds. Assuming that you invested on July 1, 1993 and paid taxes at a 28 percent rate on all distributions of income and capital gains, an investment in Vanguard Balanced Index (60 percent equities, 40 percent fixed income) would have grown to $580,000. An investment in Vanguard Asset Allocation Fund would have grown to $619,000. An investment in AIM Balanced, a brokerage sold fund with a 4 star rating from Morningstar, would have grown to $610,000.

If your advisor committed more than 60 percent of your money to equities or if you added new investment funds each year (or both), chances are you would do better with a passive approach or with another advisor.