Q. From 1993, I've invested $623,123 through a CPA/financial planner. Of the amount invested $540,000 was in taxable accounts, $83,123 in retirement accounts. It was spread over 21 mutual funds. Today the value is $500,610 and $65,107, respectively--- a $57,406 loss of principal.

I'm now teaching myself what to do. I plan to use your 75/25 couch potato portfolio. I am 56 years old and will retire at 65. How do I get my money from the dealer firm and into the index stock and bond accounts? Are there capital gain considerations?

I am also going to "gamble" with day trading with $2,000 to $5,000; several of my friends with 2 to 8 years of experience make some money this way and are coaching me.

---R.P., by e-mail

  

A. Day trading will waste your time. It will also detract from learning how to invest. I suggest a more serious alternative: take $50,000 of your nest egg--- less than 10 percent--- and spread it over a portfolio of 10 stocks you select.   Measure your performance year by year. If you trail the major indices after three years, fire yourself, sell the stocks and put the money in your Couch Potato account.

All the major firms now have broad brokerage accounts that allow you to buy and sell individual stocks and bonds as well as mutual funds.   I suggest you take the following steps:

•           Determine the capital gains tax liability in your taxable account.                Given the figures you gave, taxes are not likely to be a problem.

•           Liquidate your holdings and put everything in a money market account.

•           Contact a firm like Vanguard, Fidelity, Charles Schwab, or Waterhouse                and establish a new account, providing them with account numbers for                transfer. Let them handle the transfer from your current accounts.

Why do I suggest liquidating your holdings and going to cash?

Simple. While it is an extreme step, many people encounter resistance and foot-dragging from their account manager or from the brokerage firm itself. Proprietary funds must be sold before closing an account because they cannot be transferred. In addition, many investors own unit trusts that were created and distributed by their brokerage firm. Worse, the only market maker for the units may be the brokerage firm. You can remove some of these roadblocks to transfer by converting as much as possible to cash.

  

Q. After the past downturn in the market, I bailed out (sold 70 percent) to preserve my capital. Now I am considering redeploying using a modified version of your Couch Potato portfolio, but using ETF index funds. I have two reasons for doing this. First, ETFs can be traded at any time during the day, rather than waiting for the end of day net asset value per share, which you must do with mutual funds. Second, there are no penalties if the investment is sold before 180 days.

What is your opinion?

---M.H., by e-mail

  

A. The larger your portfolio, the greater the odds your strategy will be efficient. I would not recommend your strategy for a small investor who was making regular new investments because the purchase (or sale) of Exchange Traded Funds always involves a commission. Even in today's' highly competitive market, a commission of $10 is still equal to 1 percent of a $1,000 investment. That means most of the people who invest month by month would incur relatively high costs for ETF investing compared to no-load mutual fund investing where you can add amounts as small as $50 or $100 to an initial investment.

For an investor with an established portfolio, however, ETFs are a competitive alternative to low cost index mutual funds. Better still, the universe of ETFs has expanded rapidly and now offers good choices for basic portfolio construction. You can get a basic listing, with daily performance updates, at: http://www.amex.com/asp/option_index_trackers.asp

Perhaps the most interesting aspect of the new iShares is that you can invest in a broad index such as the Russell 1000, 2000, or 3000 and you can also invest in the growth or value portions of each of those indices. This means you can have a growth or value "tilt" to your portfolio.