Where to put your money when saving for a home

Q: I am 27 years old and earn $47,000 a year. I put 15 percent of my pay into a 401(k) and a pension. I have also put six months of salary into a bank for emergencies. But after paying rent and bills, where should I put the rest? Some say mutual funds, some say stocks, but those are long-term investments. I would like to buy a home in four or five years.
H.L., via e-mail

A: Right now you have plenty of options, but you may want to consider a fixed-income investment such as a certificate of deposit, says Los Angeles CPA Harlan Levinson. Granted, CD yields are piddling at the moment, but as Mr. Levinson says, "getting a return of 1 percent is better than losing 10 percent."

Investing in this manner is especially important since you're trying to save money for a specific goal that is not too far away. You don't want to speculate with that money, he says. Rather, just accumulate it and know it will be there when you need it.

You're doing a great job of saving for the long haul, Levinson says, and it may be best to play the stock market with the investments inside your 401(k).

Q: I am 62 and have a 401(k) through Fidelity. When the stock market took a dive, I transferred funds into Fidelity Money Market, Fidelity Intermediate Bond Fund, Fidelity Government Bond, and Fidelity Foreign Fund. All have done well, except the Foreign Fund, which has lost about $1,000 since May 2001. How long should I keep the money in the bond funds and what should I do with the foreign fund?
S.J.B, via e-mail

A: The real issue here is whether you have a diversified investment portfolio that meets your risk tolerance, says Peter F. Lucier, a CPA and CEO of Strategic Wealth Management Inc., of Temecula, Calif. The best defenses in the next decade, he says, are going to be diversification and regular portfolio rebalancing, combined with low-cost funds. Don't fall prey to market-timing strategies and other "beat the market" messages, he warns.

As you creep toward age 70-1/2, when you must start withdrawing from your 401(k), Mr. Lucier says you may wish to adjust the percentage of your money in bonds, from, say, 30-40 percent now to 50-60 percent by then.