Last week we discussed suggested investments for our 'Composite Case Number One' - a widow of 72, with longevity and health care concerns. Her investment recommendations and allocations won't be same as our case this week. Why? Living on a fixed income for starters, protection of principal is extremely important, for who will bring in income to replace a bad investment?

This week, here's our family of four:

Two spouses ages 38 and 42, both work full-time, successfully employed, one self-employed - redundancy probably not an issue at the present time.

Two children, ages two (in day care) and ten (in private school like more than 60 percent of Bermudian children) and university coming sooner than they think.

Own home - bought four years ago - managed to scrape together down payment by borrowing from relatives and the Bank of Bermuda, but carrying a big mortgage.

Decent size savings account, a couple of mutual funds, one in the Asian sector they bought eight years ago - which then promptly tanked, some local company shares.

Understand investments quite well, but neither time or inclination to follow through. Mr. Self-employed is more concerned about having enough in retirement - than paying down the principal on their mortgage - at present, Mrs. Spouse feels differently.

They appear to be underinsured.

Their risk tolerance is balanced, slightly tilted toward aggressiveness.

What do they do with their amalgamation proceeds? They didn't receive a fortune, but still they want to invest it carefully.

Looking at their current asset allocation their risk is concentrated in one or two sectors, not diversified at all. Why start with an asset allocation assessment, instead of just recommending an investment product? At the risk of sounding a bit like a parrot, a client's entire financial profile has to be considered before recommending any investments, otherwise the asset balance (if there even is one) may be completely skewed.

By changing the percentage allocations to a broad spectrum of assets, and keeping them rebalanced, they are now nicely diversified. Small cap eight percent, Large cap 26 percent, global UK, Europe, Asia, Japan, Emerging Markets, distributed from eight percent down to two percent, high grade government bonds - eight percent, high grade corporates 18 percent and high yield - four percent, along with a ten percent alternative class allocation. Because retirement concerns are higher than their current debt, they decide to pay off part of their mortgage, purchase a life insurance policy on the Mr., and invest the rest. They have eight years before they need to draw on their savings for college, and if necessary, they can refinance their home.

In the adjusted model, their allocations are balanced to suit their risk profile. The challenge now is to adjust their entire asset group, including their pension to be weighted within these parameters. You can do this yourself, or an alternative to trying to choose several mutual funds that fit, is to invest in a mutual fund that is globally diversified and managed for you. Called managed portfolios or asset allocation mutual funds, they have become extremely popular - sort of like having your own portfolio manager on a budget.

I'm asked about purchasing individual stocks all the time and am not a big fan. Many small investors start with great intentions, then eventually end up buying stock on rumours, hot tips, party talk, media recommendations (by the time those come out, it is too late to get a good deal) and financial sales pitches. If you must own single stock positions, you have to be prepared to do quite a few things:

Buy enough different positions to be fully diversified.

Be absolutely 100 percent positively sure that the company is long-term first class.

Be absolutely sure that you are going to hold this asset for the long-term, or

If short-term be sure to have a hold 'em and fold 'em strategy.

Be sure you understand the total cost of trading, and be very, very careful about the use of margin accounts.

It is true that years ago, before the popularity of mutual funds, stock portfolios were common for anyone who could afford to build up 30 or more positions. They tended to be blue-chips companies, mostly that paid dividends, and yes, they were held for the very long-term - in some cases through several generations of the same family. If you must own a small stock position, consider Berkshire Hathaway B shares www.berkshirehathaway.com. This holding company owns about 30 broadly diversified companies; it is expensive, though, one share costs about $85,000, class B's about $2700.

Beware the financial salesperson (you don't know and who comes cold-calling) who stands to gain commissions from every trade and the investment agreement that allows someone you don't know very well complete discretion over how to manage your money. These decisions, when not researched carefully, just as you would if you were buying a car or planning a great vacation, all too often, are a recipe for disaster.

There are many tales told to me over the years, and continue to be told of discretionary accounts that have been traded (churned) down to just about nothing.

Here's one way to assess a financial salesperson. Create your own client composite case - course, you can't use the one above - and take the same case to several different places, ask the same questions and get the investment literature. Then line up the results: advisor by advisor by advisor. Trust me, there will be a stand out. One individual (and firm) whose financial advice you understand, that you trust, that you respect, and that you feel will help you truly meet your investment needs.

Get going, time is wasting, your investments may not be earning what they should for your future. Consulting with a qualified licensed investment professional for an objective opinion is always an appropriate choice.

As with any investment in capital markets, past performance is no guarantee of future results.

Martha Harris Myron CPA/PFS CFP is a Bermudian, and VP, Investment Centre, Bank of Bermuda, Member of HSBC Group. She holds a NASD Series 7 licence, and formerly owned a US financial services practice meeting the needs of 400 individual and corporate clients. She can be reached at 299-5578, or confidential email can be directed to marthamyron@northrock.bm

The article expresses the opinion of the author alone, and not necessarily that of Bank of Bermuda. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy or sell investment products, nor as a promotion for financial plans. The Editor of The Royal Gazette has final right of approval over headlines, content, and length/brevity of article.