Question: When I left my previous company, I rolled my $400,000 401(k) into a Merrill Lynch IRA with the broker who represented the 401(k) plan. He wants me to put the money with one or more money managers who would charge a 2 percent fee, and he has given me information on six available money managers with whom I could place $100,000 or more.

I'm just not comfortable with money managers. I've never heard anything good about them. I've always been more comfortable with equity mutual funds (I've had money in Mutual Shares Z for 15 years).

To compound the problem, I have another IRA from a previous 401(k) rollover in a broker-managed account. He's almost doubled the account in just more than two years. However, he invested only half of the account in equities. Out of 10 stocks he has picked to date, four have been losers and 50 percent of the value of the account is in three stocks. This account has grown from $218,000 (in October 1997) to $395,000 today.

I'm pleased by the growth, but the failure of the manager to take profits and diversify the portfolio worries me. I'm 49. My wife is 53. I worked for the same company for 21 years and left due to a merger last August. I'm doing consulting for the acquiring company (in Tampa) while I figure out what to do next. This $800,000 is my retirement fund. What is your opinion of my situation? I know you like the couch potato approach, but I would prefer to be more aggressive. A.R., Dallas

Answer: The argument that routinely comes from the sell side of money management is a macho, "What do you care about a 2 percent annual fee if you're getting top returns with top managers?"

It's a question that inexperienced investors have trouble answering, particularly since they'll be afraid of sounding cheap. The problem is that most people, including those who sell investment services, don't like to think in terms of probabilities. I personally would be happy to pay management fees of 5 percent if I was certain it would net me superior long-term results.

Unfortunately, I have seen no evidence suggesting that high fees will buy superior performance. But I have seen a great deal of evidence indicating that high fees hinder performance. Worse, the longer the period of investment, the higher the odds that high fees will take your performance down materially perhaps from the top 25 percent to the bottom 25 percent of comparable investments.

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