Q. I feel you do a good job of preaching to the choir. And sometimes I feel you are making comparisons that may not apply to the great unwashed--- those who don't read up on things like ETF's, index funds, etc. Others lack confidence in making their own investment decisions so they don't do anything.

So tell me this: given the choices of (1) buying into some load funds, (2) spending the money, (3) buying CDs, (4) keeping the money in a mattress, or (5) something else, what turns out to be the winner?

I guess I'm looking for some constructive value to commissioned sales in this industry, and think there must be some value. What do you think?

---L.C., by e-mail from Houston


A. Your comment on "the great unwashed" makes me think you have never heard the classic Will Rogers quote: "Everybody is ignorant, only on different subjects." I think of it regularly, particularly when I feel a personal finance smug-rush coming on.

The sad truth is there are millions of investors out there who would answer your question by saying, "Anything but choice number one." They wouldn't say that because there is anything inherently bad about load funds or paying a commission for knowledgeable help with investing. They would say it because the commission driven side of the investment business has a long history of marketing and selling what it thinks will sell, not what it should be selling, and of employing obedient salespeople who sell what they are told to sell.

The investing public faces two major problems when they deal with the commission based investing business. First, there are literal thousands of funds being touted by salespeople who have nothing to sell but expensive proprietary funds that have no redeeming virtue. The most cosmic example I can think of is the 403(b) industry and its client base of teachers, nurses, and other non-profit workers, particularly in Texas and California. Insurance-based variable annuity products dominate this market. These products have costs that are mutually exclusive with reasonable long-term performance. As I have demonstrated many times, a simple broad index fund regularly outperforms all but a handful of variable annuity equity funds simply because of the cost differences.

The second problem is that the commissioned sales business model is so inherently expensive that some of the major brokerage houses are simply declining to serve small investors. They aren't doing this by shutting the door in your face. They're doing it by declining to pay any commissions at all on relatively small accounts. They are doing this after years of giving brokers reduced payouts (a lower percentage of gross commissions) on small accounts.

When are you a small investor? At Merrill Lynch, the nation's largest brokerage firm, a small investor is anyone whose account assets are under $50,000. Basically, the big houses on Wall Street are telling Main Street to get lost.

What's my take on this? People who can save and invest enough to build a $50,000 account on their own aren't going to need help from Wall Street when they (finally) have a $50,000 account.


Q. Eight years ago I retired with a fair amount of IBM stock. Now, I am still holding a few thousand shares and would like to generate more income. The stock seems locked in a range of $90-$100 and yields less than 1 percent.

The problem is that my cost basis is about $10 a share. Even with a 15 percent capital gains tax there is a sizable bite. I'm torn between liquidating, paying the tax, and reinvesting in higher yields--- perhaps convertible preferred stocks--- or liquidating 100 shares at a time over a period of years. What are your thoughts?

---D.F., be e-mail


A. All of us have a favorite tax rate---0 percent--- but 15 percent is close enough. Taxes should NOT be part of your considerations in this matter. At a recent price of $93.27 IBM yields 0.8 percent, less than half the 1.90 percent yield of the S&P 500. So you can sell the shares, pay the tax, instantly diversify, and increase your income all at the same time. It doesn't get much better than that.

If those 'few thousand' shares are a large part of your financial assets, you need to sell and diversify.