Every Wednesday, Legg Mason Wood Walker financial adviser Jonathan Murray answers e-mail on your investments. To be included next time, send your questions.

> From: Goldstein, Jon W.
Sent: Tuesday, February 26, 2002
To: 'Murray, Jonathan P.'
Subject: $

Hello, Jonathan,

Our first question today comes from a reader who may be hoping that the news of Enron's demise has been greatly exaggerated:

Jonathan, do you think that Enron has a chance of turning around its downward slide?

Concerned

From: Murray, Jonathan P.
Sent: Tuesday, February 26, 2002
To: Goldstein, Jon W.
Subject: RE: $

Dear Concerned,

While Enron might turn around, I wouldn't hold your breath. By the time they emerge from litigation and inquiry, years could elapse. In the meantime, they will be selling off assets to pay off creditors, so even if they do ultimately emerge from bankruptcy, they will be a shell of their former selves (pun intended!)

> From: Goldstein, Jon W.
Sent: Tuesday, February 26, 2002
To: 'Murray, Jonathan P.'
Subject: $

My family's income will be increasing drastically within the next two years. We would like to start investing once our income starts to climb higher into the six digits. What would be the best approach for us so we won't have to start owing taxes? Two avenues we have discussed were another retirement account -- we are both federal employees -- and a money-market education account for my 10-year-old daughter. What do you think?

Margaret Tate

From: Murray, Jonathan P.
Sent: Tuesday, February 26, 2002
To: Goldstein, Jon W.
Subject: RE: $

Dear Margaret,

Congratulations for having such a bright financial future. It's always nice to know that your incomes will be rising nicely.

Rather than focusing first on how to minimize your taxes, I would put into place a solid investment program. Too many people let "the tail wag the dog" and worry about taxes first, then investment returns. So, set up a well-diversified, systematic investment program, whereby you automatically have a set amount of money going to fund a few investment accounts.

One should be a 529 College Savings account for your daughter. But don't use a money market, as you suggest. Since your daughter is only 10 years old you should use a well-diversified equity growth fund. Over the next seven years that account should outperform a money-market account, which today is only paying around 1.5 percent. And it grows tax-free, so that will help your tax picture.

I like your idea of funding a second retirement account. Before you do, make sure that you are "maxing out" on your retirement plans at work. Once you've done that, you might want to consider a Roth IRA or a variable annuity to further defer taxes and grow for retirement. Talk to your tax adviser about whether these would be appropriate for you.

Lastly, make sure that you sock some money away in a regular, taxable investment account. This should be money that is earmarked not for retirement, but for your needs within the next 5 to 10 years.

Good luck, and good investing!

> From: Goldstein, Jon W.
Sent: Tuesday, February 26, 2002
To: 'Murray, Jonathan P.'
Subject: $

What do you think of investing in the Investment Center of America (ICA)? I am thinking of investing $200,000 and taking a $1,300 annuity. I am 51 and am taking advantage of an early retirement from BGE.

Thanks,

Dave

From: Murray, Jonathan P.
Sent: Tuesday, February 26, 2002
To: Goldstein, Jon W.
Subject: RE: $

Dear Dave,

You might be referring to the Investment Company of America, or the ICA fund. If so, I can't recommend any funds to you without knowing more about you and without sending you a prospectus. (By the way, folks, don't let anyone sell you a fund without getting to know your goals, objectives, and explaining all of the risks, costs and fees.) However, I can tell you that ICA is one of the oldest mutual funds around. It is one of the American Funds offerings, and has a fine reputation.

That said, do NOT even consider putting all of your $200,000 into any one fund. I don't care if it's the best fund on the planet; you should never put 100 percent of your nest egg in one vehicle. Spread it around. Mix a growth style fund with a value style fund. Mix in some bonds, some mid/small cap offerings, and maybe even a little bit of international equity.

You are 51 years old ... you need a nicely diversified, balanced portfolio that will continue to grow for you, but that also provides income.

Make sure you reconsider the annuity decision, since that often restricts your liquidity and your control over your assets, especially when you're gone.

Dave, this is one of the biggest financial decisions in your life. I'd find a financial adviser to help guide your decision-making.

Good luck!

> From: Goldstein, Jon W.
Sent: Tuesday, February 26, 2002
To: 'Murray, Jonathan P.'
Subject: $

Thanks, Jonathan,

Talk to you next week.