AKAMAI MONEY

By Deborah Adamson
Advertiser Staff Writer

Q: I'm in my 50s and finally have some money to invest, but I have very limited knowledge of what I'm supposed to do. I just don't know where to begin, whom to talk to. My 401K retirement account is at an institution that offers no advice and I am not very happy with the service. — Jim Mao, Kane'ohe

A: The gut reaction for people in your situation may be to open the phone book and pick a financial planner. But hiring a professional to manage your money without knowing something about what they're doing could be risky.

"It's a very big problem which many people have," said Ron Wall, a family economics specialist at the University of Hawai'i at Manoa and author of "You and Your Money." "You don't go to a car dealer and ask them, 'What car do I buy?' "

Educate yourself in investing so you can better evaluate professional advice. If not, you may end up judging advisers by their bedside manner instead of their skills, Wall said.

To be sure, it's not easy separating honest from biased advice. Free investment seminars offered by brokerage firms sound attractive, but they tend to be sales presentations, Wall said. People who sit through them may feel let down by the process and give up on investing.

But there are independent, consumer-friendly resources out there if you look carefully.

One helpful book is the Standard & Poor's Guide for the New Investor, Wall said. The Dummies series of books also are a good start.

The Web offers a myriad of free investment information, and one good source is The Vanguard Group, Wall said. Vanguard is one of the nation's largest mutual fund companies with a reputation for being investor friendly.

Vanguard offers free investment information at http://flagship4.vanguard.com/web/
planret/PlanningAdvicePublicOverview.html. For free booklets, click on "PlainTalk in print" to the right. To contact the company by phone, call (800) 662-7447.

It also might be worthwhile to join the American Association of Individual Investors, a non-profit educational group whose goal is to help individuals invest, Wall said. Its Web site at www.aaii.com offers free investment information. A basic membership fee of $29 a year gets you the AAII Journal, guides to mutual funds, dividend reinvestment plans and others. For information, call (800) 428-2244.

When you're doing your research, you might feel overwhelmed by investment strategies that can get quite complex. But you should only invest as simple as you can understand it, Wall said. Don't go in over your head.

"You can be a millionaire (on annual returns of) 4 to 5 percent if you keep saving and investing," he said.

The average individual can manage his or her own portfolio with a little effort, said Doug Gerlach, author of Armchair Millionaire and Investment Clubs for Dummies. Your need for professional advice is less critical if your assets are under $1 million.

Invest your portfolio in diversified, no-load mutual funds from Vanguard, said Eric Tyson, author of Investing for Dummies and Mutual Funds for Dummies. Vanguard is known for its low-cost mutual funds; you want to watch fund fees because they will cut into your profits.

Wall likes the Vanguard Balanced Index Fund (VBINX), which invests roughly 60 percent of assets in stocks and 40 percent in bonds. It tracks the Dow Jones Wilshire 5000 Index for stocks and the Lehman Aggregate Bond Index. The fund's bond exposure, traditionally a more conservative investment, offsets its riskier stock investments. The fund's annual average return since its birth in 1992 is 9.4 percent.

Wall said you could put 70 percent of your portfolio in the Vanguard Balanced Index Fund and 20 percent in the Vanguard Short-Term Bond Index Fund (VBISX). The Bond fund's average annual return is 5.73 percent since its inception in 1994. The remaining 10 percent can be invested in something more focused, such as a fund that only invests in high-quality Asian stocks or a particular industry, such as healthcare.

Sources for mutual fund ratings and research is www.morningstar.com or www.lipperweb .com.

If you feel more comfortable getting a professional opinion, spend a few hundred dollars for a financial planner to create an investment plan for you. If you're willing to go further, get a second opinion on the plan, Gerlach said.

Look for a fee-only certified financial planner; a list is available at the National Association of Personal Financial Advisors at www.fee-only.org. Fee-only planners don't get a commission from investments they put you in and hence have less incentive to favor higher-costing products than other advisers. Instead, they get a fee for their services or a percentage of your assets if they manage the money for you.

Note that a financial planner is not necessarily a stockbroker and vice versa. A financial planner, or adviser, designs a financial plan for you while a stockbroker does the actual buying and selling of securities. But a planner can be a broker and a broker can be a planner.

In your plan, the financial planner will tell you how to invest your money as well as handle tax and estate planning issues.

You can execute the investment portion of the plan yourself if it mainly involves opening mutual fund accounts. As for taxes and estate planning, it might be worthwhile to find a reliable accountant and estate planning attorney to help you.

Got a personal finance or consumer question? Contact Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.