Q. I still have 35 percent of my 401k savings buying a large cap growth fund. Yes, I took huge hits. However, with dollar cost averaging, I think I am actually buying low for the first time in my life, so I am pretty happy.

Does this make sense? Will dollar cost averaging, buy and hold, etc. pull me through? Or does the fact that mutual funds buy and sell dilute this whole concept? Put another way, is the money I've put into mutual funds in the last two years really gone, or do I have a lot more shares of something at a cheaper price?

I'm 56, will probably retire at 60, and have a company pension plan.

---M.H., Kailua, Hawaii


A.  No amount of dollar cost averaging will overcome a portfolio manager who is a turkey. So I suggest some careful research into the fund, like how long the current manager has been managing it and what his/her performance has been relative to other large cap growth funds. You can get all this information, online, at www.morningstar.com.

You didn't name your fund so let me give you some examples. American Funds Growth Fund A shares is a fund to keep dollar averaging into. It has low expenses (0.71 percent) and has been in the top 20 percent of its category over the last 12 months, 3 years, 5 years, 10 years, and 15 years. Morningstar, which gives it a 5 star rating, also shows that its portfolio is at lower price to earnings, book, and cash flow ratios than the average portfolio in the category. Over the last 3 years it has ranked in the top 3 percent of its category, losing only 4.45 percent annually. That performance is way, way better than its competition.

MFS Emerging Growth A shares, on the other hand, qualifies as a turkey. With the same management in place for nine years, the fund trailed 90 percent of its competitors over the last 12 months, 83 percent over the last three years, and 92 percent over the last 5 years. Worse, you pay more to get that performance: its expense ratio is 1.18 percent.

That's 66 percent more than American Funds Growth Fund A shares. 


Q. I need advice about how to invest $10,000 every other month. My husband and I are retired teachers, in our early 80's and in good health. We have no debts, excellent health insurance, guaranteed pensions for life, and a portfolio in excess of $1.5 million.

Our portfolio consists of common stocks, mutual funds, unit trusts, REITs, CD's, three tax deferred annuities (two variable, one fixed), individual insured bonds, and two intermediate bond funds of $100,000 each. For the past two years we have bought only municipal bonds that yield 5 percent or slightly more, long term. We aren't interested in buying any more stock since those we own are in dire straits.

Our children and grandchildren are well educated and gainfully employed. We have already traveled as much as we want. We give generously to church, charities, and other worthy causes. And we pay a sizeable amount of income tax although more than 70 percent of our portfolio is in tax-exempt bonds.

My questions: Should we purchase long term care insurance to protect assets for the children.

---E.C., by e-mail


A. It's a little late for you to buy long-term care insurance. The premiums would be impressive. In addition, while the possible need for long-term care might reduce your estate, it is improbable that it would destroy your estate. The combination of pension incomes and a large asset base means you are ideal candidates to self-insure.

The best way for you to deal with anxiety about long term care is to do some real research and measure the impact Long Term Care might have on your assets.

I suggest that you and your husband do some homework in two specific areas. First, find out how much it would cost for the two of you to live in an assisted living facility or for one of you to live in a nursing home. Compare those costs to your current cost of living. With $1.5 million in financial assets you could cover any income gap simply by annuitizing a portion of your assets. This would leave the bulk of your estate untouched.

A second path would be to explore moving to a Continuing Care Community. In these communities you can live independently when you move in but have the assurance that assisted living or nursing care will be available when you need it.  You can start your learning at the Senior Care Web.