May 11, 1997

Q. I am a 68-year-old widow and my investments are these: $110,000 in certificates of deposit, 4,300 shares of American Smallcap World fund, and 3,300 shares of Capital World Growth and Income. Are my investments too conservative? Too risky? I'm an absolute novice, and talk of a market correction has made me concerned.

L.I., Long Beach, Calif.

A. I'll put it this way: Were you to reverse your allocations, so that stock mutual funds composed 40.3 percent of your portfolio and certificates of deposit represented the rest -- I'd think you were still holding a fairly risky portfolio.

At current prices, the American Smallcap position is worth $109,048 and the American Capital World Growth and Income holding is worth $53,772. I would not only suggest you look to a portfolio that's no more than 40 percent stocks, but also suggest you add a more conservative element to it. You might, for example, reduce the holdings in American Smallcap World fund to $41,000 -- roughly 15 percent of your holdings, and do the same for Capital World Growth and Income fund. Then add a $41,000 position in American Balanced fund, which is in the same fund family and has built a solid long-term record. Since this fund divides its assets among stocks and fixed-income holdings -- the tally was 53 percent stocks at the time of the last Morningstar Mutual Funds report -- this would give you roughly 38 percent stocks.

If you wanted to take a slightly bolder stance, you might put $45,000 into each of the three funds -- meaning that each fund would represent roughly 16.5 percent of your portfolio, and that the stock elements of the holdings would add up to slightly more than 41 percent.