Investor, Know Thyself

Yes, you can achieve positive returns in today's turbulent market. But it starts with you and knowing your "money personality."

great time to invest in stocks,” says Leah Brown, 31, a finance manager in Houston. “You can buy them at much lower prices compared to a couple of years ago. We want growth from our investments, and for growth you need to own stocks.”

Leah and her husband, Gregory, 31, a Houston attorney, find the current outlook brighter than it was in 2000 when they were holding a sizable portion of their $60,000 portfolio in cash. “We had invested in some technology stocks and took losses there,” says Gregory. “Prices still seemed high so we were reluctant to reinvest. At the same time, we were trying to put money aside to buy a house.”

Now that they have their house, the Browns’ cash is flowing back into the stock market along with a modest allocation to bonds. “At their age, with their long time horizon, they should have most of their portfolio in stocks,” says Houston-based Certified Financial Planner Scott M. Wallace with Barrington Financial Advisors, who advises the Browns.

As the Browns return to the stock market, they are taking a different approach. “We’ve lost confidence in our ability to pick individual stocks,” says Gregory, “so we’re investing in stock funds now.” They, too, are putting money into the Clipper and Jensen funds along with the Royce Opportunity Fund (RYPNX), a small-company fund with a stellar re
cord.

According to Wallace, some people have been scared away from the market by the tech stock travesty of 2000 and the Sept. 11 terrorist attacks. “However,” he says, “the stock market looks encouraging now. Interest rates have been cut, the economy is recovering, and company earnings are expected to improve. You don’t want to be waiting on the sidelines when the market turns up.

“Mutual funds make sense for individual investors for a variety of reasons, including that they reduce the risk of buying into a particular business. People probably will do well if they buy a variety of funds from proven fund families such as AIM, Hartford, Oppenheimer, and American.”

Consider an IRA Conversion
With the stock market off sharply from 2000 levels, chances are that your IRA is also depressed. If that’s true, this may be a good time to convert your IRA to a Roth IRA. An IRA, as you probably know, is a tax-deferred account. By contrast, a Roth IRA becomes tax-free after five years, as long as you’re at least age 591/2.

There are, however, a few catches. “You can’t convert an IRA to a Roth IRA if your income is $100,000 or more on a single or joint return,” says Richard Salmen, a financial planner in Overland Park, Kansas. “In some cases, clients have stopped part-time work late in the year or have taken extended unpaid leaves from their jobs. One couple I represent did both and wound up with [a joint] income of $99,640 one year so they could convert.”

The other problem? When you convert a regular IRA to a Roth IRA, all the income tax that could have been deferred becomes

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