Q. What are prospects for my shares of E-Trade Financial Corp.? — M.L., via the Internet

A. Even though a talking baby is the voice of this online discount brokerage in its commercials, the financial problems stemming from previous risk-taking are hardly child's play.

On the plus side, it has added new accounts, losses have narrowed and loan delinquencies have flattened.

Yet low trading volume and low interest rates have prompted E-Trade to lower its commissions and fee structure. It is refocusing on its core online brokerage business as it tries to recover from a disastrous bet on mortgage securities that resulted in it having to sell assets and raise capital.

The company remains vulnerable should the economy or markets backslide. The prognosis for this speculative holding is that it will either get its business back on track or sell itself to another financial services company. The latter possibility is behind some of the stock price jumps of recent months.

Shares of E-Trade (ETFC) are down three percent this year after last year's 53 percent rise. It is seeking shareholder approval for a 1-for-10 reverse stock split that will reduce the number of shares in order to increase the price per share. It does not pay a dividend.

After months of searching, E-Trade recently named former Citigroup Inc. executive Steven Freiberg as its new CEO, signing the 53-year-old to a four-year contract. Freiberg spent 30 years at Citigroup and was in charge of the global consumer group.

Consensus opinion on shares of E-Trade is between "buy" and "hold," according to Thomson Reuters, consisting of three "strong buys," two "buys," nine "holds" and one "underperform."

E-Trade offers sweep, checking and savings products to its brokerage clients. It has about 4.5 million client accounts and $26 billion in deposits. Citadel, as E-Trade's largest debt holder and equity holder, exerts considerable power over the company. While E-Trade is no longer in financial distress thanks to the injection of new capital, cash flows could be uneven as it shifts its mix of investments.

Earnings are expected to increase 98 percent this year compared to the 62 percent rise forecast for the national investment brokerage industry, according to Thomson Reuters. Next year's projected gain is 367 percent versus 24 percent expected for its peers. The expected five-year annualized decline of 27 percent compares to an 11 percent gain forecast industrywide.

Baby controversy: Because a "milkaholic" boyfriend-stealing baby is named Lindsay in an E-Trade commercial, actress Lindsay Lohan sued the firm for $100 million in damages. E-Trade says her claim is without merit.

Q. I would like your take on Parnassus Small-Cap Fund. — P.J., via the Internet

A. This strong-performing fund launched in 2005 is run by Jerome Dodson, the founder of Parnassus Investments and a veteran of socially responsible investing.

Espousing strong investment and moral philosophies, Dodson invests a considerable amount of his own money in the funds. He believes that, given a choice, investors will favor companies that positively impact the world.

Some of his social screens include treatment of employees, workplace diversity, environmental responsibility and support for community. He won't invest in companies involved in alcohol, tobacco, weapons or nuclear power.

The $173 million Parnassus Small-Cap Fund (PARSX) is up 64 percent over the past 12 months to rank in the top one-third of small growth and value funds. Its three-year annualized return of 5 percent places it in the top two percent of its peers.

"While Parnassus Small-Cap Fund held up a lot better than most of its peers in 2008, it also did well in 2009 when a lot of funds didn't," said Katie Rushkewicz, analyst with Morningstar Inc. in Chicago. "It offers good downside protection and management that can do well in different market environments."

With 25 years of investing experience, Dodson consistently looks for firms with a strong market niche, good five-year intrinsic value and low price. Dodson usually holds positions for three years. The fund has reasonable expenses; he is supported by seven analysts and a trader.

"Since the fund has a small-cap focus, at times small caps can be out of favor, so it should be a supporting player in an individual's portfolio," said Rushkewicz. "It's not always going to be at the top of the pack, but over the long term should be a good investment."

Industrial materials companies represent one-fifth of the fund's holdings, with other significant concentrations in hardware, telecommunications and business services. Top holdings were recently Ciena, Administaff, Bridgepoint Educaiton, Teleflex, Toll Brothers, Quicksilver Resources, Gen-Probe, VeriSign, Northwest Natural Gas and Nordson.

This "no-load" (no sales charge) fund requires a $2,000 minimum initial investment and has an annual expense ratio of 1.20 percent.

Q. Please settle this disagreement: How much debt should a person have relative to income? What do experts say? — H.C., via the Internet

A. The question of how much debt is appropriate has become a common discussion point following the financial meltdown that threw family budgets into disarray.

A general rule of thumb among financial planners is that you should not permit your non-mortgage debt to consume more than 20 percent of your net income. Car payments can usurp quite a bit of that amount.

In addition, 28 to 33 percent of your pay would typically go toward your mortgage—which includes taxes, insurance, interest and principal.

"That means you're committing about half your income to house payment and debt service," explained Catherine Williams, vice president of financial literacy for the non-profit Money Management International counselling service in Houston. "There's nothing wrong with saying you'll stretch to get a bigger house, but that will also likely mean an older car in the driveway."

While this is a general guideline used widely in the personal finance field, you know your financial situation best and other implications that should be taken into account as you plot a debt strategy.

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, Ariz. 85004-1248, or by e-mail at andrewinv@aol.com)