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Investor, know thyself. (Money Management).

Yes, you can achieve positive returns in today's turbulent market:. But it starts with you and knowing your "money personality."

By discovering your money personality, you can begin to understand your attitude toward finances, which can help increase your chances of building wealth. You'll know whether a balanced or more conservative investment approach will give you the confidence to stay in the market over the long haul, increasing the overall performance of your portfolio. Making smart moves now can improve your retirement plan statements at the end of the year. So let's get to it.

Match your Investment to Your Personality

if you've been debating whether investing in the stock market is right for you, it may be a good idea to find out what type of investments match your money personality. The hope is that by integrating your dominant personality traits with the characteristics of your investments, you will have a better personal experience with saving and investing, and better investment results over the long run.

Kathleen Gurney, CEO of Financial Psychology Corp., collaborated with the GE Center for Financial Learning on a quiz to help determine your money personality. (The quiz can be found at

Gurney, who has analyzed the psychology of financial behavior for years, says that personality traits such as risk tolerance, confidence, trust, and pride have an impact on how satisfied a person may feel about investing.

Also, "since investments differ widely, you have to consider the potential return, the risk involved, the liquidity (rapidity with which you can sell at a reasonable price), and whether the investment generates income or requires additional cash over its life," she says.

Gurney also notes that control over investments can be a major factor for some people. For example, "owning a small share in a large corporation gives you essentially no control," says Gurney. "Owning a rental property allows you the control of painting it, fixing repairs, insuring it, and collecting rents."

Taking the Moneymax Money Personality Profile on the aforementioned Website can help you understand why you react to the market the way you do. You can then use that information to restructure the investments within your 401(k), IRA, and other retirement vehicles to make you more comfortable with the process. This will allow you to stay the course as we go through one of the most difficult investment periods in years.

After you take the Moneymax quiz, you should be able to tell which of the following nine groups you fall into:

* Safety Players--cautious and security-oriented

* Entrepreneurs--performance-driven and goal-oriented

* Optimists--positive and confident

* Hunters--aspiring but self-doubting

* Achievers--proud and conservative

* Producers--hardworking but frustrated

* High Rollers--sensation-seeking and creative

* Perfectionists--highly analytical and thorough

* Money Masters--wise wealth accumulators who locus on value, enjoy a high level of participation in managing their money, and pride themselves on making practical investments.

Take a Balanced Approach

with the stock market showing such great volatility over the last five years--some years were great for stocks but disastrous for bond (1998,1999), while others were great for bonds and horrible for stocks (2000, 2001)--it had been difficult to predict what 2002 would bring. That's why it's best to have investments in both stocks and bonds at all times.

One investor determined to keep a balanced approach is Kenneth W. Arinwine, a 68-year-old retired school principal in Oklahoma City. He's comfortable with a portfolio that consists of 50% bonds, 40% stocks, and 10% cash. "A few years ago," says Arinwine, "I was almost entirely invested in stock funds. Then I changed my strategy to a mix of stocks and bonds, and I'm glad I did. In the past two years I've held my own, even though the stock market has dropped."

Arinwine's advisor, Oklahoma City financial planner Kathleen Williams of Williams Financial Services Group, says that his portfolio was "entirely too aggressive" for a retiree. "Stocks are volatile, and a portfolio tilted toward stocks can suffer large losses. After you retire, you can't make up those losses by investing more of your earnings."

Before he revised his portfolio, most of Arinwine's investments were growth stocks, especially small-company technology issues. These tend to be volatile, and many have been hammered in the last two years. Now Arinwine has only 40% of his portfolio in domestic stocks, including 15% in the Jensen (JENSX) and Clipper (CFIMX) funds, well-regarded large-economy growth and value funds, respectively. Another 10% of his portfolio is invested in the Tweedy Browne Global Value Fund (TBGVX), a foreign stock fund that can buy stocks from anywhere, in the world.

The rest of Arinwine's portfolio is 50% long-term government and corporate bond funds and 10% cash, which provides him with income as well as protection against a three-peal bear market in stocks. "Each client's situation is different," says Williams, "and a younger investor might have more in stocks now. Nevertheless, most people should hold some bonds and cash as well as stocks in their portfolios."

Williams is a fan of mutual fund investing, which reduces the risk of putting most of your money into an Euron or a Global Crossing. "We prefer funds that have been around at least 10 years," she says, "with at least five years under the current manager." Considering the highs and lows of the stock market over the past five years, such a record may indicate, how a fund manager is likely to fare in the future, in good times or bad.

Don't Abandon Stocks

individual investors have an unfortunate tendency to buy at market highs and sell at market lows. In early 2000, when U.S. stocks were at record levels, enthusiasts couldn't put enough money into the market. Two years of losses later, after stocks have been marked down sharply, some people are stock-shy.

Through May 2002, though, the case for investing in stocks appeared to be solid. Even after two dud years, large-company stocks have returned 6.1% for the past five years (through 2001) and 12.1% for the past 10 years (through 2001), according to Ibbotson Associates in Chicago. Even still, long-term corporate bonds returned 8.3% and 8.4%, respectively, for those time periods. Going back more than 75 years, stocks have paid off with returns of 10.7% for patient investors.

"This is a great time to invest in stocks," says Leah Brown, 31, a finance manager in Houston. "You can buy them at much lower prices compared to a couple of years ago. We want growth from our investments, and for growth you need to own stocks."

Leah and her husband, Gregory, 31, a Houston attorney, find the current outlook brighter than it was in 2000 when they were holding a sizable portion of their $60,000 portfolio in cash. "We had invested in some technology stocks and took losses there," says Gregory. "Prices still seemed high so we were reluctant to reinvest. At the same time, we were trying to put money aside to buy a house."

Now that they have their house, the Browns' cash is flowing back into the stock market along with a modest allocation to bonds. "At their age, with their long time horizon, they should have most of their portfolio in stocks," says Houston-based Certified Financial Planner Scott M. Wallace with Barrington Financial Advisors, who advises the Browns.

As the Browns return to the stock market, they are taking a different approach. "We've lost confidence in our ability to pick individual stocks," says Gregory, "so we're investing in stock funds now." They, too, are putting money into the Clipper and Jensen funds along with the Royce Opportunity Fund (RYPNX), a small-company fund with a stellar record.

According to Wallace, some people have been scared away from the market by the tech stock travesty of 2000 and the Sept. 11 terrorist attacks. "However," he says, "the stock market looks encouraging now. Interest rates have been cut, the economy is recovering, and company earnings are expected to improve. You don't want to be waiting on the sidelines when the market turns up.

"Mutual funds make sense for individual investors for a variety of reasons, including that they reduce the risk of buying into a particular business. People probably will do well if they buy a variety of funds from proven fund families such as AIM, Hartford, Oppenheimer, and American."

Consider an IRA Conversion

with the stock market off sharply from 2000 levels, chances are that your IRA is also depressed. If that's true, this may be a good time to convert your IRA to a Both IRA. An IRA, as you probably know, is a tax-deferred account. By contrast, a Roth IRA becomes tax-free after five years, as long as you're at least age 59 1/2.

There are, however, a few catches. "You can't convert an IRA to a Roth IRA if your income is $100,000 or more on a single or joint return," says Richard Salmen, a financial planner in Overland Park, Kansas. "In some cases, clients have stopped part-time work late in the year or have taken extended unpaid leaves from their jobs. One couple I represent did both and wound up with la joint] income of $99,640 one year so they could convert."

The other problem? When you convert a regular IRA to a Roth IRA, all the income tax that could have been deferred becomes payable right away, If you have a $100,000 IRA, for example, the tax bill might be $35,000 or more.

"I've been reluctant to convert to a Roth IRA because of the immediate tax obligation," says Linda McCurry, 46, a database administrator in Kansas City, Missouri. "I had built up a 401(k) for 10 years and roiled it over into an IRA when I changed jobs. Converting to a Both IRA would generate a large tax bill."

That's where the bear market comes in. McCurry estimates that her IRA had taken a 25% hit by the time the market bottomed last September, and it's still down by 20%. A smaller IRA balance means a lower tax bill if you do a Both IRA conversion. Since she has received a recent inheritance, McCurry says, "I will discuss with my advisor whether paying the tax on a Both IRA conversion is a good use of [the inheritance] money."

Salmen, who advises McCurry, says the decision will depend on several factors, such as her tax bracket and the length of time until the Both IRA will be tapped. "Generally, a Roth IRA will be a good move if you can leave the money alone to grow for at least 10 years," Salmen explains, "assuming that you qualify for the conversion and have the cash to pay the up-front income tax."

--Additional reporting by Reginald Hart
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Author:Korn, Donald Jay
Publication:Black Enterprise
Geographic Code:1USA
Date:Oct 1, 2002
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