Q. Here is my dilemma: I will be 61 soon. I am very healthy and energetic. Not employed. No one wants a 60-year old Controller. I have $420,000 in 3 separate IRA accounts, down from $800,000 in January of 2000.

I am currently with a full service broker. A money manager handles each IRA and I am paying 2 percent for the service. I have learned that the stockbrokers, while nice, are really not into keeping up with and dealing with what is really going on in the stock market. They are sales people. I have been reading about and am considering going to a discount broker to reduce the expense burden.

I went the money manager route because I am not qualified to make investment decisions on this level. But with what I am seeing from my investments, I may need to become more qualified. I need my investment to grow. I have to live off my investments.

I calculate that if things do not change, I will go broke in 9 to 10 years. So I am very open to your input as to investments, brokerage firms, etc. What should I do?

---B.B., by e-mail

  

A. Gee whiz, all you think about is you. What about your brokers? Don't you realize their income has been nearly cut in half in less than two years? Their income from your investments has plummeted from $16,000 to a tad more than $8,000 and all you can think about is your $380,000 loss!

To give you an idea of how poorly you have been served, I built a portfolio consisting of equal investments in the 5 largest domestic balanced funds: American Funds Income A shares, Fidelity Asset Manager, Fidelity Puritan, Vanguard Asset Allocation, and Vanguard Wellington. I tested how it would have performed assuming that you withdrew $800 at the beginning of each month from each fund starting with an initial investment of $160,000 in each fund. This assumes an initial withdrawal rate of $48,000 a year or 6 percent of your $800,000 portfolio--- the highest amount anyone should consider for a long retirement.

Your initial portfolio value of $796,000 (adjusted for the first $4,000 withdrawal) would have declined in value to $712,594 by the end of September. To end the period with $420,000 you would have needed to withdraw about $3,600 a month from each fund, a total of $18,000 a month.

I bet you didn't do that.

A team of rocket scientists did not create this superior portfolio. I simply selected the five largest balanced funds and bought them, including one load fund.   The expense ratios on these funds range from a low of 0.31 percent (Vanguard Wellington) to a high of 0.71 percent (Fidelity Asset Manager).

I think it is quite safe to say that your advisers didn't serve you well.

My suggestion: take your money and run. Use your losses to reduce your taxes on future gains. And follow the simple path of low cost diversification.

  

Q.   We still have around $110,000 in technology mutual funds. We had about $200,000 before the crash. This represents about 1/3 of our total portfolio. I was wondering if you thought we should reinvest this amount in index funds now or would it probably be better to keep them where they are?

---B.B., by e-mail

  

A. Technology stocks represent about 18 percent of the Russell 3000 index, a broad index that represents most of all market capitalization in America. I tell you this because you can approach this problem two ways.

You can reduce your technology holding directly by redeeming your technology fund shares and replacing them with index shares. Alternatively, you can "dilute" your technology holdings by redeeming some of your technology fund shares and replacing them with shares of a fund that has a very low commitment to technology stocks.

Vanguard Windsor II, for instance, is a large cap value fund that has only 3 percent of its assets in technology stocks. Dodge and Cox Stock fund has only 6 percent of its assets in technology stocks. By investing in these funds you could retain a small portion of your technology funds and still reduce your tech investment to an "index-weight."

You should consider doing this if the particular funds you own have performed well against their technology stock peers--- something you can check using Morningstar data.

  

Correction:

My column of 10/18/01 about Long Term Care Insurance stated, "Often, Medicare sends seniors to a nursing home for rehabilitation--- and Medicare pays the bill for up to 100 days. Your financial exposure begins when Medicare no longer pays the bill and you are looking at daily expenses in excess of $100 a day."

This is not correct.

Medicare pays in full for the first 20 days. Days 21 through 100 currently require a co-pay of   $99 a day. You can be insured against this co-pay, as most retirees are, by having one of the ten standardized Medigap policies. Of the 10 Medigap policies, eight (policies C through J) offer complete coverage of the skilled nursing copay.