Q.   My grandfather in Seguin Texas makes it a point to mail me some of your articles from time to time. I'm a 25-year old growth-minded investor. I have about $4,500 or so from a previous job's 401k plan that I intend to rollover into 1 or 2 IRA mutual funds. Which funds would most benefit someone like me?

I've looked briefly at a Vanguard Index 500 (a bit pricey), a Jensen Portfolio Fund (looks good, but…), an American Funds Growth Fund (5% front load), and a few others under the Vanguard or T Rowe Price umbrella, but I remain uncertain about what may perform best or suit me best. What do you suggest?

---B. B., Corpus Christi, TX


A.   First, congratulations on your intention to rollover your 401k plan money. Most people with account balances under $5,000, whatever their age, tend to take the money in cash and spend it, which is a really bad idea.

For most people your age, retirement is going to depend on how much money you save and how long you let it grow.   Few young people will enjoy the safety net of corporate pensions. And your Social Security benefits will be much lower than those received by your parents or grandparents even though you will pay much more in payroll taxes than they did.

None of that is prediction: it has either happened or is embedded in legislation that determines future benefits. Your decision to save for yourself is a survival necessity.

Now, let's consider what we know about the future: very little.

Remember that the next time someone makes confident predictions and suggests you invest accordingly.

About the only thing certain is that the same people won't be managing the hot hand fund of 2004 in 2044. We also know that stocks provide higher returns than bonds over long periods of time. And we know from history that most governments have managed to ruin their currencies, given enough time and politicians.

The demographers tell us that the number of old people will surpass the number of children for the first time in human history well before you turn 65. They also tell us that population in most of the developed nations will actually be in decline. We're looking at a very different future, one that is difficult to imagine.

So what do we do now, given that sparse information?

We bet on the better demographics--- the U.S. and the Pacific Rim. We do this by owning inexpensive Exchange Traded Funds (ETFs) that buy both markets. You can capture 98 percent of the U.S. stock market by investing in the iShares Russell 3000 Fund (ticker:IWV) and you can invest internationally, without Europe or Japan, through iShares MSCI Pacific ex-Japan Fund (ticker: EPP). Excluding Europe and Japan means you'll avoid areas of the developed world facing significant population declines. It also means you'll be investing in areas with rising populations and strong economic growth.

The expense ratio is 0.20 percent a year for IWV and 0.50 percent a year for EPP. You can buy them via a rollover account to a discount brokerage firm where your commissions should be less than $30 each. Arrange for automatic dividend reinvestment--- not a big consideration these days--- and you're done.


Q. I'm 45, married, with two daughters 10 and 15. Our home mortgage, a 7-year adjustable rate loan fixed at 4.75 percent, is around $200,000. We have savings of $100,000. My question: shall I pay $100,000 toward my house loan or invest the $100,000? If I invest, where can I invest for better returns?

---S.G., by e-mail, Dallas, TX


A. If you were retired and didn't have the uncertainties of children I'd suggest that you pay down the mortgage. It's hard to earn 4.75 percent on your savings. As important, paying the mortgage down by $100,000 would reduce your interest costs (and increase your principal repayment) in what remains of the 7-year fixed term. Then, when the mortgage goes adjustable, the monthly payment would drop dramatically because it would still be set to a 23-year term.

But you aren't retired. You've got years to pay off your mortgage, years of family expenses to finance, and years of inflation. So I'd invest the money, creating a strong cash reserve and investing the remainder in a diversified portfolio such as the one in the preceding question.