Expert: Paul Henneman - 8/9/2003

Question
I would like to switch my grandson's investment portfolio. He is 15 years old so I am looking at am investment period of about 10 years. It is currently thru my bank and invested in Evergreen Foundation Fund CL B. I have heard that Vanguard Index 500 fund is good and that a good allocation might be 60% stocks and 40% bonds. Can I make these choices through the bank where they currently are or must I close that account and open an account with the Vanguard Group. If I did the latter would there be alot of fees and tax penalties? Thank you. You may reach me at    shirleycarnley@hotmail.com  

Answer
Shirley,
  Thank you for your question! Yes, you can make those type of changes, involving the 60% allocation to stocks and 40% to bonds, through your bank. If you close the account, you will have tax issues that will cut into your earnings. I would suggest you talk with your bank directly. As long as you know exactly what you want to do, your bank should be able to fullfill your wishes. However, I would hesitate taking any investment advice from your bank, this will not be their strong suite.
If you are looking for a conservative strategy, what you outline is good. Bonds of course can be very safe, consistent investments though they offer returns not much more than inflation. Consider this type of investment as a place to 'park' funds until you are sure what you want to do. The Vanguard fund you mention will generally parallel overall market performance. Ok if this is your goal. If you are looking to not have to worry about further interaction with the funds and just check back in 10 years, perhaps a good strategy. But if you feel the market has more difficulty ahead, then that would apply to the fund you have choosen as well. Other funds are less tied to the entire economy, and can do well even during overall poor market performance. Perhaps careful investment in several mutual funds, plus a few conservative long term growth type stocks would serve you better. Just a couple of additional percentage points in yearly performance can make a very big difference over 10 years.
Please feel free to reply to me directly at paul@ValuEngine.com if I can be of any further assistance. I tend to specialize in more active management of investments that can produce higher returns, but require much more involvement.

Sincerely,
Paul Henneman
President
ValuEngine, Inc.