by Archie M. Richards, Jr., CFP^®
December 13, 2004

Walt, who is incarcerated in prison for a minimum of ten years, has $2,6500 to invest and can add $50 a month. He writes, "Should I take risk in buying shares of a company that was on top of its industry but has fallen on hard times, in hopes that it will turn itself around in 2-to-3 years? When I committed a crime, I took a risk that I wouldn't get caught. I'm not afraid of losing money if there's a possibility of a large gain." You seem to want a quick way to make a big take, Walt. This seldom works in investing any more than it did for you in real life. I used to trade a lot and strive for big winners. I had a few winners, to be sure, but I had so many substantial losses that my overall results were poor.

Owning just a few stocks is much riskier than owning mutual funds that hold hundreds of stocks. The most important ingredient of successful investing is to cut risk.

If I were you, I'd put your money into TIAA-CREF, whose minimum is $2,500 per fund and $50 minimum for add-ons. These amounts would work for you.

To start, I suggest TIAA-CREF's Equity Index Fund, which covers 98% of the value of all U.S. publicly-held stocks. Later, when you accumulate an additional $2,500, swing half the money over to the International Equity Fund.

(Since I expect foreign stocks to outstrip U.S. stocks, I myself would go the opposite way and start with the International Equity Fund. But many Americans prefer to begin on the U.S. side.)

If you put in $2,500 and add $50 a month and the whole thing grows at 10% a year, you'll have $17,000 in ten years.

While you're doing time, don't allow boredom to cause you to dabble from one investment to another. Don't treat investments as a source of entertainment. Don't test yourself to see how well you can do. All these approaches are likely to fail.

Instead, let the market do the work. In investments, boring is better. Call TIAA-CREF at 800-223-1200. All the best to you, Walt. Happy Holidays.

Dick writes to say that he and his wife expect to retire in five years at age 62. He asks whether they can place Swiss Certificates of Deposit denominated in euros in their U.S. IRAs. They "believe the dollar will have a continuous downward spiral with respect to the euro and that inflation will rise sharply due to fiscal irresponsibility. Euros were introduced several years ago at 83 cents-to-the-dollar. Now, each euro costs $1.33, and there seems no end in sight."

Yes, Dick, you can place Swiss CDs in your IRAs. But let's consider whether this is advisable.

Based on you or your wife attaining age 100, you have an investment time horizon of 43 years. The dollar has fallen sharply with respect to the euro for only three months.

This means you're planning a 43-year investment program on the basis of a 3-month price trend. Come on! You know facts and figures better than most people who write me. But patience and good judgment are more important.

The U.S. government deficit is 3.3 percent of the U.S. Gross Domestic Product (GDP). The French government deficit is 3.7 percent of the French GDP. The German government deficit is 3.8 percent of GDP. In Japan, the deficit is a whopping 9 percent! What's that you say about fiscal irresponsibility?

Europe's policies are more damaging to economies than U.S. policies. The dollar will recover. Whenever a price trend becomes big news, most investors feel there's "no end in sight." But such investors are almost always wrong.

Falling price trends that are big news (like the dollar today) are the ones not to sell.

Rising price trends that are big news (like oil was recently and gold is today) are the ones not to buy.

In the long run, I expect inflation to disappear and interest rates to fall. Certificates of Deposit will earn little or nothing. Instead of CDs, buy stocks from all over the world and join the party!