Dear Mr. Berko:

After working for 44 years, I’ve decided to retire at age 66. My two company retirement plans are worth $516,000.

A broker who works for one of the largest Wall Street stock firms advised me to invest 35 percent of this amount in his firm’s hedge fund, which has returned more than 18 percent each year since it opened. He wants me to invest 35 percent in his firm’s commodity fund, which has had 22 percent to 31 percent annual returns for the past five years. Then he wants me to invest the remaining 30 percent in a variable annuity that will pay 10 percent every year.

These three investments would give me $92,000 a year in income. My wife passed away in 2000. I have three married children and when I told them how I would invest my retirement, they got very snoopy and concerned and insisted that I ask you if this is the right thing to do.

C.R., Moline, Ill.

Dear C.R.:

If an investment of $516,000 produces a pretax income of $92,000, that’s a fantastic and impressive 18 percent return. The only folks I know who regularly earn 18 percent or more on their money are drug dealers, bail bondsmen, loan sharks and politicians. Your three children may have just saved you from the soup lines at the Salvation Army.

I’m not going to waste this space criticizing those three investments, but suffice it to say that their returns are the exception rather than the rule. And suffice it to say that five years from now, if you take that idiot broker’s advice, you could easily be flat-bottomed broke. Please take my word for it and please know that my 44 years of managing people’s money provides me with a little more investment insight than you have.

Between 5 percent and 6 percent is the highest current return (with acceptable risk) you can hope for. Because you enclosed a self-addressed stamped envelope with your letter, I’ve sent you a sample portfolio composed of common stocks, convertible bonds, preferred issues and some high-grade limited partnerships that should give you a 6 percent dividend yield plus annual dividend growth and potentially modest capital appreciation. I’ve also included some information on a variable annuity that has capital gains potential plus guaranteed income of 6 percent a year. This should give you a good template for putting your retirement money to work.

It’s a sign of the times that so many brokers, like sharks, must remain in motion to stay alive. These lads must sell high-commission proprietary products to maintain their lifestyle and professional appearance. And, sadly, there are just too many lousy brokers giving lousy advice or too many average brokers offering average advice and not enough good brokers providing good advice. At your age and stage, you can afford only the best advice and you got it now thanks to your snoopy kids.

Please be mindful that the success of many brokers is measured not by how well your account performs but rather by the amount of commission dollars they bring into their firms each month. Many of today’s brokers are cajoled, chided and embarrassed into selling “things” and “stuff” with high commission costs. Many of today’s brokers are superb salesmen, selling visions of cotton candy, sugarplums and easy roads ahead. That’s why so many of you own unit trusts, mutual funds, new issue closed funds, municipal bond funds, high-yield funds, private limited partnerships, screwy annuities, foreign funds, preferred trusts and U.S. government bond funds — most of which are worth less today than what they cost you a year or so ago.

Meanwhile, your broker stands to gross more than $40,000 in commissions if you are dumb enough to follow his advice. I think he knows that his recommendations are unsuitable. However, I suspect that his boss figuratively stands over him to sell more stuff and things. I know, because I used to be one of those bad guys with the whip. If the boys in the office missed their goals, we reduced their commissions from 60 percent to 25 percent. And if they didn’t like it, we fired them.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

© Copley News Service