February 23, 1998

Q. My wife and I have a combined monthly income of $6,000 after taxes, and our goals are to accumulate approximately $1 million by the time we retire at age 65, and to build a college fund of approximately $50,000 apiece when each of our two children reach age 18. The boys are 11 and 8, and my wife and I are 41 and 36, respectively. Our savings consist of $6,600 in American Century-Twentieth Century Ultra fund, a $10,000 passbook savings account, and $2,500 for each child in American Century-Twentieth Century Giftrust. IRAs include $700 in American Century Growth Investors fund, and $800 in Scudder Large Company Growth. My wife's 401(k) plan has an $11,500 balance. Ongoing monthly contributions consist of $300 to American Century-Twentieth Century Ultra, $100 to the American Century-Twentieth Century Growth IRA, $50 for each of the Giftrust accounts, $100 to Scudder Large Company Growth, and $480 into the 401(k) plan, which is invested in Fidelity's Magellan and Growth and Income funds. We are planning to add another $200 a month to our IRA accounts. What do you suggest?

N.L., San Diego

A. You should easily achieve your retirement goal, but fall far short of the targets for your sons' educational funds.

If you achieve 10 percent average annual total returns from your retirement portfolio and continue saving at your current pace, you should amass $1,380,352 by the time you reach age 65.

But with the same assumption, the older child's college account should reach only $10,827 by the time he is 18, while the 8-year-old's account, with more time to develop, would amount to just $16,487 10 years from now.

To achieve the $50,000 targets for each son would require monthly investments of $387 for the older child, and $217 for the younger -- again presuming 10 percent returns.

And if it were my money, I would give up on American Century-Twentieth Century Giftrust, which has performed poorly for two consecutive years, and seems to be running toward the back of the pack this year as well.

I suggest ongoing investments go into a balanced fund for the elder boy -- perhaps Dodge and Cox Balanced or Vanguard Balanced Index -- and into a growth and income fund for the younger. Scudder Growth and Income is a fine fund in that category, and has recently been upgraded by Morningstar Mutual Funds to the highest rank. Fidelity Growth and Income is also a superior entry in that group.

Even if you aren't inclined to add to the educational funds with that extra $200 a month, you won't be allowed to put all of it into the IRAs. Since each of you is already contributing $100 a month to those accounts, you can only bring those contributions up to $166 to stay within the $2,000 annual maximum.

As for your other investments, the funds are too similar.

All five hold large-cap portfolios, with three of them in the large-cap growth category and the other two (the Fidelity offerings) a blend of growth and value large-cap portfolios. I suggest you add some variety -- and spice -- to your retirement holdings by putting about 40 percent of the combined portfolio in funds in the value, small-cap, international, and health care categories.