by Archie M. Richards, Jr.
November 27, 2006

Morgan writes, "I'm 60 years old with $58,000 in stocks and bonds and $10,000 in variable annuities, all invested by a broker in 9 mutual funds. I have $30,000 in a money market fund and expect to receive an inheritance of about $100,000 next year. I have other income and should be able to retire in 10 years if I can accumulate $450,000. Here are questions about adopting the recommendations in your website www.archierichards.com > Suggested Portfolios:

• Should I leave my current investments alone and use your recommendations only with next year's inherited money?

• Or should I ask the broker to change my current investments to fit your recommendations?

• Or sell what I have and swing everything over now? Would it be better to do this gradually or all at once?

• You website recommends mutual funds at Vanguard or exchange-traded funds at Foliofn. Which do you prefer?"

Let's see, Morgan, you have about $100,000 now, and you'll have a total of $200,000 next year. Let's assume the $200,000 has only 9 years to grow to $450,000. This requires an after-tax return of 9.5 percent a year. That's doable, but there's no time for mistakes.

My recommendations call for index funds or exchange-traded funds, each one invested solely in stocks of a certain type. (I favor ETFs at Foliofn.) As one asset class moves down in price, another might be rising, limiting the volatility of the whole. These are the asset classes I recommend:

Specific investment recommendations you'll find in my website. I may change the percentages modestly every few years.

The account should be rebalanced every year and a day (to prevent short-term gains). If the percentage of any asset class has risen by 30 percent or more, sell a portion to bring that group back to the above percentage. For example, small value stocks start at 3 percent. Next year, if that portion amounts to more than 3.9 percent of the whole (3 plus 30 percent of 3), sell the excess to bring the percentage back to 3 percent. Invest the proceeds in groups that have been weak.

My website also contains spreadsheets you can download to handle the rebalancing. If you need assistance, hire a bookkeeper.

If possible, combine everything in one place. Here's why:

• Having your investments in two organizations makes it difficult to calculate the overall percentages.

• Transferring funds from one group to the other when rebalancing means you have to mail cash from one group to the other. This is a pain. And while the checks are in the mail, the market would probably move against you.

• If you hold actively-managed mutual funds rather than index funds, it's hard to identify what asset classes you own. Actively-managed funds tend to skip from one type of stock to another.

This is what I would do: Withdraw the $30,000 from your money market fund now and buy my recommended exchange-traded funds through Foliofn (www.foliofn.com). When your inheritance comes in, buy more ETFs.

If you can close out your current investments without paying heavy redemption fees, do it now. Otherwise, ask the broker to configure your investments as closely as possible to the above asset classes.

As the fee on any of your current investments drops below 3 percent, (redemption fees fall every year) sell it and swing the money over to Foliofn.

Understand that no matter what you do, I earn nothing from your investing. Downloading my spreadsheet costs you nothing and earns me nothing. But if my recommendations appeal to you, just do it.

Make your investing as easy as possible, so that you may get the job done and forget about it until the time comes to rebalance a year later.