July 20, 1997

Q. My husband and I are thinking of selling a house used as a rental. We would like to invest $100,000 of the proceeds. Since I will be retiring soon, we would like to invest this money in something that will give us a good monthly dividend. Do you have any suggestions for us?

G.D., Imperial Beach, Calif.

A. Provided your plan is to hold your investment for the long term, by which I mean at least 10 years, I will make three suggestions, each with an increasing level of risk. At the tamest, you might look at the AARP GNMA and US Treasury fund, which maintains a portfolio of about one third US Treasuries and the balance in Ginnie Maes. Over the past decade its average annual return has been 7.65 percent, and its 12-month yield is 6.5 percent. Stepping up in risk just a tad would be the Vanguard GNMA portfolio, entirely invested in Ginnie Maes, sporting a 10-year average annual return of 9.00 percent and a 12-month yield of 7.1 percent.

Finally, taking the risk level still higher, would be the Vanguard High-Yield Corporate portfolio, for which you can read ``junk bonds.'' This fund has produced average annual returns of 9.73 percent, and has a 12-month yield of 8.7 percent.

But before you consider any of these you must remember that they are appropriate only for long-term investors. Even though the tamer two are entirely invested in securities issued by or guaranteed by the US government, their market value is not guaranteed. If you look at the record for such funds over a decade or so, what you see is that they tend to have about two bad years out of every ten and that they tend to regain the lost ground fairly predictably. So in the end what you are left with is a regular monthly interest check that exceeds what you might get at a bank, a lot of swings in current market value, and ultimately very little gain or loss in principal. But you should not invest in these if you think you may need to use the funds within that 10 years or if you are uncomfortable with the idea that an asset might lose ground in any given year.