This week's panel:

Do I really need a bond fund?

Is there an age requirement for buying mutual funds?

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Do I really need a bond fund?

from Raymond

Q: Everything I have read indicate that I should have an asset allocation of stocks, bonds, and cash, but I wonder if I really need bonds or specially, a bond fund?

I am a 59 year-old retiree with a defined retirement plan and I am able to live within my pension amount. I also have a deferred compensation plan (457) and Roth IRA that are in a variety of equity funds and I don’t plan to withdraw funds from these sources, i.e., they are my very long-term investments and market volatility is not a concern. Also, my money market account and laddered CDs provide a more than adequate emergency fund. Finally, I have several income producing rental units that pay for themselves.

Your comments or information will help me determine where to invest my Roth IRA for 2002.

A: (Cathy) Thanks for submitting your question to MFI! Congratulations, it sounds as if you are in a very enviable position of financial independence at the young age of 59.

Age alone should never be THE deciding factor in planning your asset allocation. That is a myth. The biggest determinants of whether or not you should consider bonds in your portfolio are the following:

1. How long before distributions are taken from the portfolio?

2. How risk averse or non-averse are you?

3. How much volatility can you withstand?

4. What is your purpose/investment objective for the money?

5. What other sources of income, if any, do you have?

I cannot give you specific advice, since I know so little about you. But, judging by your statement, perhaps an all equity portfolio may be perfectly suitable for you. You imply that you will not require any distributions (presumably until 70 1/2) and that volatility is really not a concern. Furthermore, your pension, rental income and laddered CD's will provide you enough income and emergency money for the foreseeable future. If this is all true, I really can't think of any reason to allocate anything to bonds....as long as you can withstand the volatility.

My best recommendation to you would be to diversify your equity portfolio across various styles, company size and global borders. Selecting and matching together asset classes with low correlations to one another is the great way to minimize portfolio risk while increasing overall expected return. Some asset classes to consider Large, Large Value, Small, Small Value, and the same asset classes on the international side.

Is there an age requirement for buying mutual funds?

from Lucy

Q: What is the minimum age that a person can purchase mutual funds? Can a child under the age of 18 purchase mutual funds?

A: (Lou) There is no minimum age that a person can purchase mutual funds. However, usually if the child is younger than 18 or in some states, such as Pennsylvania, the age is 21, the account must be established under the Uniform Transfers or Gifts to Minors Act (again depending upon the state). Once the child reaches the age of majority, the account must be transferred into the child's name entirely.

Important Disclaimer

Investing in equities involves a serious principal risk, and no assurance can be given that the techniques described here will be successful. Returns vary and you may have a gain or loss when you sell your shares. Past performance is no guarantee of future results. Index returns shown are historical and include the change in share price, reinvestment of dividends, and capital gains. Indexes are unmanaged and do not reflect the impact of transaction costs. Transaction costs would have reduced the total returns.

International investments, especially those in emerging markets, entail greater risks (as well as greater potential rewards) than U.S. investing. These risks include political and economic uncertainties of foreign countries, as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less-established markets and economies.

Lastly, the questions and responses set forth here are for general informational purposes only and are not intended to substitute for performing your own independent research or contacting your financial or legal professional before making any investment decisions. We make no guarantees as to the performance of any investment strategy you choose and are not responsible for any losses you might incur.