Thursday, December 31, 1998

Q. Is there any scenario in which the Couch Potato portfolio should not be used? It seems to make great sense and seems so simple. We have a great deal in stocks, mutual funds, etc.— about $400,000— managed through one of the large brokerage firms. Their performance doesnt seem to be that great. I would like to save the expense of a broker by using your method. Do you think financial advisors offer enough service to justify their percentage over the long term? Im just not sure.

—M.L., Dallas, TX, by e-mail

A. The primary value of an investment advisor may not be his actual advice but his ability to get you to make a decision and a commitment. I have been writing about Couch Potato investing as a simple alternative with reasonable and competitive returns for years. I know the concept has a loyal following. I also know that many people are still "thinking about it", "waiting for a dip in the market", "sure that were due for a correction", etc., etc. While sloth is your ally once you become a Couch Potato investor, it is your enemy until you actually commit your money.

Thats what an advisor can do for you— lead you to a commitment.

AFTER you have seen the results of those commitments, you can test your advisors value by checking performance against a simple, low expense idea like the Couch Potato.

I also think the phrases "financial advisor" or "financial consultant" are among the most wretchedly misused phrases in the language. While some that wear the hat are trained in financial planning, most are trained to sell the products offered by their firm.

A real financial advisor will look at your entire situation, grasp the relationships between different investments (taxable, tax deferred, etc.) and help you USE your assets in the most productive way. The process of investing assets is relatively simple— its something that can be done with a concept as simple as the Couch Potato portfolio. The complicated part is relating the use of the assets to our circumstances and hopes. That requires real financial planning. Sadly, many who wear the financial advisor "hat" are what Texans call "all hat, no cattle."

Q. My wife and are both school teachers and are "prisoners" of 403b annuities where we work. We both decided to max out the ROTH before we contribute any money to our 403b accounts. As you mentioned in your article, this way we can choose low cost, low load mutual funds and skip the fees of annuities.

But that means we will be relying on a tax break in the future. I am concerned about what would happen if Congress changes its mind in the future and takes away the tax break. They did that with Social Security for some people.

Furthermore, Congress could also change the tax system to something like a national sales tax— where you pay extra taxes on things you purchase. Do you think Congress would make provisions for people with a Roth if that happens?

—B.W., Dallas, TX

A. I dont know what Congress will do in the future. Neither does Congress. We do, however, know that non-taxable money from a Roth account will buy more than taxable money from a regular tax deferred account if we have a national sales tax in the future simply because dollars will come out of the Roth account tax free.

This is one of those things where you make a careful assessment of your current choices and "take your best shot." Given the option of paying taxes today but having my money compound tax-free in a low cost no-load mutual fund or achieving tax deferral by subjecting my savings to a defacto "tax" of high annual expenses, Ill pay taxes today.

Have a wonderful New Year and remember this, next time youre worried about money:

Its only money. It could have been something truly important.