Is bailing out of funds a good short-term move?

Q My husband and I are in our mid-70s. Our mortgage is paid off and our adjusted gross income for 2000 was $15,700. We have $10,000 in IRAs with a credit union. Eight years ago, we inherited $21,000, which we put into mutual funds with a brokerage firm. Last September we inherited another $80,000 and invested it in a similar way. Now, we are losing money every month. Should we take out some or all of the money and put it into CDs or money-market accounts?

W.G., via - e-mail

A "It's hard to be too specific because we don't know which funds you are in," says Terry Nager, president of Southern Capital Services Inc., in Daphne, Ala. (www.socapsrv.com). "You are probably taking a tax loss on your funds right now, so it seems safe to take some money out."

Mr. Nager suggests you pull out 30 to 50 percent of the total and put it in a money-market account. "Take the money from growth funds, if you have them, and leave money in any value funds," he says.

Value has been outperforming growth. Finally, start to dollar-cost average the money back into your funds over the next six to 12 months, Nager says. When you reinvest, consider putting the money into index or managed funds linked to the S&P 500 Index, he adds.

Finally, if the market were to hit bottom - and it were well identified as the bottom - you may want to put a large sum of money back, and then slowly put in the rest.

Q I have never invested in stocks or mutual funds. How does a "newby" enter the world of investing? Do you have to be rich?

J.F.D., Boston

A "No, you don't have to be rich," but investing over time might help you to become wealthy, says Nager. "The timing couldn't be better for a person entering the market," with stocks prices falling.

Nager suggests that you look for a no-load stock mutual fund with a low minimum initial investment. Check with companies such as Vanguard and Invesco, he says.

If you have many years before retirement, look for a growth-oriented equity fund. Put in as much as you can monthly.

Of course, if your company offers a tax-deductible 401(k) plan or 403(b) plan with a company match, be sure you sign up. Taxes on earnings are deferred, unlike regular accounts, where you must pay Uncle Sam annually.

(c) Copyright 2001. The Christian Science Monitor