On the edge-tentatively

Conservative investors take on a smidgen of risk to boost their returns

hadn’t gotten scholarships, then those funds would not have been available. You have to set that kind of money aside,” he adds. “When our daughter gets of college age, we want to be prepared. We want to be able to finance her education.”

Expert Advice
Financial Advice: Baunita Greer, President and CEO, Cromwell, Miller & Greer Inc.,
New York
Greer’s recommendations:

  • Open an Individual Retirement Account (IRA). The couple needs to contribute $2,000 a year to an IRA to further build their nest egg. Given their limited resources, they should start by investing the money in a blue-chip mutual fund. Once their pool of resources grows, they need to diversify-allocating 70% of their assets to stock funds and 30% to bond funds. Of the equity portfolio, 50% should be in blue chip/large caps, 20% in growth and income, 20% in small caps and 10% in international funds. As for fixed-income investments, Greer recommends a mix of corporate and U.S. Treasury bond funds. Greer notes that the business isn’t generating enough revenue for Therrie to look into self-employed retirement vehicles such as a Keogh plan, which also would be too cumbersome at this point in terms of administrative paperwork and cost.
  • Establish an education fund. The Williams family still has another 13 years to save for their five-year-old daughter’s college education. Again, they should contribute to a good core equity fund that has a solid large-cap or blue-chip portfolio. Worth considering are the college plans offered by Fidelity Investments and T. Rowe Price. Since the Williamses have to take most of their money and put it back into their business for now, they should start with at least $50 a month, taking advantage of an automatic reinvestment plan. Greer says the couple also needs to eliminate their credit card debt over the next five years.
  • Prepare for a loss on the speculative investment. Greer believes that the Williamses’ stake in a private placement is highly speculative and risky. Such investments can sometimes generate high returns, so it is possible that the Williams family could see a 100% return on their investment. But the reality, says Greer, is that “nine out of 10 times, investors never see their money again. If a person is comfortable with that possible loss, then fine. But I’ve seen too many investors fall prey to get-rich-quick schemes, thinking that they are going to take $2,000 and turn it into $20,000 overnight.”

Greer adds that while the Williamses’ investment in the inventor’s venture was small-equivalent to what they would have spent on a vacation-they would be better off putting any extra cash into their own investment program.

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