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PERSONAL FINANCE : FIRST STEPS : HOW 3 INVEST : Doctor Given Prescription for Financial Health

June 19, 1988

John Buster was front-page news around the world four years ago. Then a UCLA obstetrician and gynecologist, he was the brains behind a medical first: An infertile woman had given birth. The woman, who had a boy, was implanted with an embryo fertilized in another woman.

"It is a fairly common procedure now," says Buster, 46. "Nowadays, nobody thinks about it."

The company that helped fund Buster's work--Fertility & Genetics Research Inc.--rewarded him with stock options laden with complicated provisions. The man who had fooled Mother Nature found managing his new-found portfolio a little too taxing.

"Money is not the most important thing to me," he says. "My profession is what's important and I don't want to be disturbed from my work."

He turned to Richard Moran, a financial planner with Financial Network Investment Corp. in Torrance. Buster--who wants to slow down in 15 years--asked Moran to sift through the options and design a plan for his retirement.

If Buster's portfolio had been one of his patients, it would have been on the critical list. He had $90,000 in retirement plans; $80,000 in a money market account; $12,000 in an oil and gas partnership, and $8,000 in a leasing partnership.

By Moran's calculation, Buster needed $7,000 a month in income upon retirement to maintain his current life style. "If he simply continued investing in what he had been, he would have obtained only half of that," Moran says.

Buster would have to invest with an eye for growth opportunities if he were to meet his goal. At the same time, the investments had to be fairly liquid in case Buster exercised his Fertility & Genetics Research options to buy the company's stock and incurred a tax liability, conceivably as high as $75,000. So far he has exercised only a few of the stock options.

Because Buster does consulting work, he qualified for and set up a self-employed pension individual retirement account (SEP-IRA) in 1986. The annual contribution can be as high as 15% of his self-employment income, is deductible and compounds tax-free until withdrawn.

Moran recommended that Buster invest through the SEP-IRA $6,000 in Putnam International Equities Fund, a mutual fund of U.S. and foreign stocks.

"Foreign markets don't usually fluctuate in step with the U.S. market," Moran says. "Putnam balanced the risk of solely relying on the U.S. stock market."

Buster and his wife, Fran--a 42-year-old computer consultant--also set up regular IRAs. Fran invested her $2,000 IRA contribution in Investment Portfolios Government Plus, a government bond fund. Buster invested his $2,000 in the Income Fund of America, a fund of U.S. stocks and bonds.

"It is helpful in an IRA account to have conservative investments because if you have a loss, you can't take a deduction," Moran says. Deductions for IRA contributions are no longer allowed for many middle-to-higher income individuals with company pension plans, including Buster, who earns about $125,000 a year.

For more growth, Buster invested $25,000 in two real estate partnerships. DRG/Huebner Country Ltd. owns a San Pedro office building and shopping center and a San Diego apartment building; Alamo-85 Investors Ltd. owns a Texas shopping center. The Tax Reform Act of 1986 restricted partnership deductions but Buster managed to squeeze most of his writeoffs in before the new act went into effect. Now he'll start receiving income. "Frankly, we were lucky," Moran says.

Then, in 1987, Buster got an offer to serve a five-year research stint at the University of Tennessee at Memphis, which would allow him to continue improving the efficiency of embryo transfers. Even though he intends to return to California after five years, Buster sold his Los Angeles house, bought another in Memphis and still had $112,500 left over.

Now Moran had more money to play with and he decided to realign Buster's portfolio using asset allocation by a computer program that churns out model portfolios based on historical performances of investment groups. Buster picked a moderate-risk portfolio.

The computer recommended 10% be in certificates of deposit and cash, 18% in fixed-rate annuities, 16% in municipal bonds, 10% in foreign stocks, 16% in domestic stocks, 3% in gold stocks, 22% in income-producing properties and 5% in leasing partnerships.

It was June, 1987, three months before the stock market crash, something the computer had not foreseen. Not all of the computer's picks were winners.

Buster invested $30,000 in New Perspective Fund, a domestic and foreign stock fund. In December, he switched the $25,000 that was left into Capital Income Builder, a high-quality stock fund. The $35,000 he put into a conservative stock and bond fund with Kemper Advantage III Variable Annuity is now worth $34,000. His $12,500 stake in International Investors--a gold stock fund--has fallen to $9,750.

Lifetime Managed Municipal Bond Trust (current yield 6.52%) has grown Buster's $35,000 investment into $38,000. Buster put another $30,000 into Meridian Equipment Leasing, a limited partnership. He won't know how that turns out for a couple of years.

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