April 20, 1997

Q. I am the personification of the Nervous Nellie. I am 65 and have no pension or anything beyond Social Security. I do have $125,000 in a CD at 7.5 percent and $40,000 in Series EE US Savings Bonds. I also have $40,000 in cash to invest. One broker suggested I put 40 percent of this in fixed income holdings, 20 percent in a growth and income fund, 10 percent in an international index fund, and 10 percent in an aggressive growth fund. The rest would go into a money market fund. He suggested that I not invest the money all at once, but spread it out over a period of six months. Watching the market rollercoaster every day makes me apprehensive. What do you suggest?

A.C., Oceanside, Calif.

A. With a couple of exceptions, I think your broker has suggested a pretty solid plan. The three stock funds he suggested would represent less than 15 percent of your savings, so you would not be putting too much reliance on the market. But I think that investing over six months is moving a little too fast -- especially when faced with a market that I still consider high and jumpy. I would rather see the stock investments spread out over 12 months, and better still over 18 to 24 months. The spreading out is called dollar-cost averaging; it's designed to protect you against a sour market by making some of your purchases at lower prices, giving you a lower average cost than had you made the leap all at once.

But I would move right ahead with the fixed-income investments; I don't think there's a lot to gain by trying to time the bond markets, and while it seems likely that some further interest rate increases are in the cards, it doesn't seem to me that they will be either numerous or large -- and that phase should end once the current economic expansion comes to an end.

The other element of your broker's suggestion that I question is the aggressive growth fund. I am not enthusiastic about aggressive growth funds -- and especially for Nervous Nellies. I've always thought that the managers of these funds tend to interpret their mission too broadly, more or less declaring, ``Damn the risk, full speed ahead.'' Lipper Analytical Services Inc., which dubs these ``capital appreciation'' funds rather than aggressive growth, reports a 2.94 percent year-to-date loss for the average fund in the group through April 10; this compares to a 0.57 percent loss for the average growth fund. And even over a five-year period, which has been dominated by strong markets, the growth category outperformed the capital appreciation category, 90.52 percent to 84.49 percent. Finally, I suspect that the variances in performance will increase in the event of a sour market, and increase to the further disadvantage of the capital appreciation category.