June 22, 1997

Q. I am 27 and will earn between $31,000 and $32,000 this year. I have an IRA account of $12,000 with these investments: $1,000 each in Janus Growth and Income, Janus Worldwide, Heartland Value Plus, Montgomery Emerging Markets, and $2,000 in PBHG Core Growth. The balance of the IRA is in a money market account. I have a $2,000 contribution to the IRA for this year, half to be made this summer and the rest later. Is my retirement portfolio well diversified? If not, what should I change? Should I be dollar-cost averaging the funds in the money market into all of my funds, or just into certain funds? How should I allocate this year's contribution? What percentage should remain in the money market account?

A.B., Medford

A. To start with the last question, the answer is zero. With at least 30 years before retirement, the money markets are just too tame for any part of your retirement portfolio.

Given your youth, I wouldn't even bother with dollar-cost averaging -- just get the money market funds into stocks.

Aside from the money fund, you seem to have fairly good balance in your portfolio, although there are two elements missing -- a small company fund and a health care fund. But I'm not happy with your core holding -- PBHG Core Growth.

This fund, only 18 months old, has had a spotty record, returning 32.80 percent in 1996, but losing 9.7 percent so far in 1997 as its portfolio of high-multiple stocks has stumbled. Since we seem to be nearing the end of a bull market, I don't think a fund with a price-to-earnings ratio of 39.5, which PBHG showed in Morningstar Mutual Funds's last report, warrants further investment.

Instead, I would make Janus Growth and Income my core holding. Thus, I would transfer half of the money now in PBHG to Janus Growth, and then add $5,000 from the money market account, bringing your holdings there to $7,000 -- a figure that should, by the end of the year, represent roughly half of the total IRA account.

With this year's contributions I would establish accounts of $1,000 each in Vanguard Specialized Health Care and Kaufmann fund, the latter being a fairly aggressive entrant in the small-cap arena. As for the final $1,000, I would divide it among Janus Worldwide and Heartland Value Plus. You might, though, divide it among the various funds, with a target allocation of 50 percent in Janus Growth and Income, and the balance evenly divided among the six smaller holdings.