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How you save the family's money has a lot to do with your personality

- Alan Lavine and Gail Liberman

How would you characterize the investment personality of you and your spouse?

Whatever your response, chances are you're making some investment mistakes, suggests Merrill Lynch Investment Managers, Plainsboro, N.J. The company recently sponsored a nationwide study on this issue.

Of course, Merrill Lynch certainly would like you to hire them to help you invest. But there are many other options.

The telephone survey, of 1,000 persons with at least $75,000 in liquid assets, classified them into these leading categories.

Measured Investors. These are in good shape and should retire well. They started investing at a young age and methodically reapportion investments so they don't have too much in any one. They don't try to beat the market or take big risks.

The utopian group? Not necessarily. They have difficulty selling losing investments fast enough.

Reluctant Investors. These don't like investing and prefer to spend as little time as possible managing their investments. They typically have a financial adviser.

This group's greatest mistake is waiting too long to start investing.

If you fit into this group, don't despair. The good news is that reluctant investors have some important strengths. Most don't over-invest in any one thing, and they are less likely to hold onto losing investments too long. Remember. It's always better to start investing late than never.

Competitive Investors. This group knows a lot about investing and is passionate about trying to beat the stock market. Many competitive investors have started investing early, and they invest regularly.

Their problems: Forty-six percent took too long to sell losing investments. Thirty-nine percent said they had put too much of their holdings into one investment. Competitive investors also may chase hot stocks--a trait that has led many to financial ruin.

Recognize you or your spouse in any of these groups? If so, consider taking these steps practiced by professionals.

Set up an investment plan. The earlier you get one, the better. Mark how much your family will need to meet major expenses--junior's college education, a new baby, a new home, retirement. Determine how much you'll need and how many years you have to obtain it. Why? The less time you have between now and your written goal, the less you should invest in stocks. You don't have enough time to make back losses. Go to www.nolo.com for a good calculator to help.

Once you've determined proportionately how much of your money to keep in stocks, compared with bonds and cash, figure what you might realistically expect to earn on this investment mix. Benchmark: Stocks historically have averaged 10 percent; bonds 5 percent; and cash, such as bank CDs, 3 percent. Calculate how much you'll need to regularly invest to achieve your financial goal.

Diversify your investments. Determine a target range of how much you should have in stocks, bonds and cash at any given time. Diversify stocks further according to industry, company size and country. Diversify bonds based on interest-rate sensitivity, maturity and risk. Treasury bonds are considered the lowest-risk category of bonds due to a direct guarantee from Uncle Sam.

Periodically "rebalance" your mix of investments back to the original proportions you set. Do this by taking profits in investments that have too much and reinvesting them into losing investments.

Choose well-managed investments. Adjust the proportions of your investment mix as your goals change.


Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.

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