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October 2001

Q. I'm concerned about the declining value of my retirement investments in our uncertain economy. Since these funds are invested in stocks and IRAs - rather than concrete, banked savings - I worry that my retirement income is threatened. Is it possible to lose all of the money I've placed in an IRA? What low risk options are out there? What can I do in general to manage the risks to my investments?

A. Unfortunately, it is possible to lose a great deal of your investment savings, even in their entirety, including those in IRAs. But you can do a lot to prevent it from happening. First and foremost, work closely with your financial planner to balance conservative and risky investment strategies. You should revisit your strategies regularly, regardless of the economic climate. During particularly uncertain times, it's a good idea to review your investments at least monthly.

There are a number of ways to construct a more conservative investment strategy. For example, you might change from predominantly higher risk stocks to predominantly lower risk (and lower return) bonds. You might evaluate the risk factor of individual mutual funds in your portfolio, and move to funds that are managed more conservatively. You could ask your broker to put a "Stop Limit" on your stocks, so that they will automatically be sold if they fall below a certain price per share. You could also move funds to safer savings vehicles with lower risks (and lower returns). If you choose to go that route, here are some options to consider.

  • Money Market Funds. Money market funds are short-term government bonds that typically stay at $1 per share. The principal (the amount of your original investment) normally doesn't change (it's possible, but there would be have to be something very dramatic happen to government bonds). Interest rates vary daily. Money market funds are low-risk, but they are not federally insured unless you invest with a bank that offers FDIC-insured money market accounts and your balance is under $100,000. Generally, you should be able to roll your IRA funds into an FDIC-insured Money market account (which remains inside your IRA). Be sure to ask for a "no load" money market account. However, if you are rolling the funds over from a mutual fund, the mutual fund company may charge a fee when the money is taken out of the fund.

  • IRA CDs. Some banks offer IRA CDs. These IRAs are funded with an FDIC-insured CD, which earns the same interest as regular CD rates (currently three to five percent, depending on the maturity length).

  • U.S. Treasury Bonds. You can purchase U.S. treasury bonds through a brokerage account. Your initial investment is not insured, but the backing of the federal government makes it virtually fail-proof. U.S. treasury bonds take from one to thirty years to mature. Returns range from two to three percent for the one-year bonds, to five percent for thirty-year bonds.

  • Brokerage "Cash Accounts." Many brokerages have cash accounts that are covered by the Securities Investment Protection Corporation (SIPC). Similar to the FDIC, the SIPC insures cash in a brokerage fund up to $100,000 per account. Be sure that your brokerage account has SIPC protection and read the details of additional coverage available.

These are just an introduction to the more conservative investment options that are available to you. Be sure to work closely with your financial planner to decide which, if any, are best for your long- term goals.

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