It's Refund Season - Time to Plant Investments

For millions of Americans, spring means green, not just for the yard but for the bank account.

"It's one of my favorite days of the year," says Karen Johnson, a housewife, clutching a tax refund from the Internal Revenue Service. "The day the check comes, my husband and I rush to the bank. This year, the money will help buy a new sun deck off the dining room."

Brian Meridan, a Manhattan public relations man, also takes his tax refund check and heads to the deposit line. "I just put it in the bank until I need it."

Chris Hatten, a local college student, uses his check to pare down his MasterCard bill. "I'm saving interest charges," he says.

The average federal check this year: $1,467, up slightly from 1996. It's like an extra $120 a month to spend - enough for a refrigerator, car down payment, modest vacation, or finally getting serious about investment goals.

Just what should you do with a refund check?

Spending is one option, but experts suggest more prudence.

"First thing, change your tax withholding," says John Markese, president of the American Association of Individual Investors in Chicago.

The refund, he says, represents an interest-free loan to Uncle Sam.

Nonetheless, some taxpayers prefer a refund.

"You can be penalized if you underpay your taxes," says Mrs. Johnson, whose husband recently retired. "I like to make sure the IRS gets enough.... And I enjoy getting a nice refund."

"Lot's of people see the check as a little 'spring dividend,' to go out and spend," says Scott Horsburgh, a partner at investment advisory firm Seger-Elvekrog Inc. in Bloomfield Hills, Mich.

"That's how come most people are not rich," he adds. "I would hope that the taxpayer would take the check and invest it."

For long-term investing, he recommends stock mutual funds.

The stock market - with an average return of 10.7 percent annually - has historically outpaced inflation, currently running about 3 percent, and bank certificates of deposit, now yielding about 5 percent a year for a six month CD.

A $1,400 check may lack the heft of a pot of gold, but it can get you closer to one.

Consider parking the $1,400 into a stock mutual fund. At 10.7 percent per year, you end up with $2,574 in 10 years, not including dividend reinvestment.

The woods are full of equity funds with better returns than 10.7 percent. In fact, the average 10-year return on domestic equity funds is higher: 11.8 percent.

The chart above lists a few funds with low minimums.

The Franklin-Templeton and Invesco fund families each have highly rated stock funds.

Templeton World Fund, a global investor, has returned an average 14.8 percent annually for the last three years. Invesco's Growth Fund earned 12.4 percent for that period.

Templeton charges up-front "loads," or commissions, of about 5.75 percent, while Invesco has no load.

The other funds are also no-load: Pax (15.7 percent annual return for three years), Muhlenkamp (18.8 percent), and Midas (11.4 percent), a gold-stock fund.

And spring is often the right time to plant investment strategies.

"Sometimes the stock market is not all that strong" in late spring, notes James Fraser, of Fraser Management Associates in Burlington, Vt. "If the market is down or in a correction, that would be an ideal time to invest in stocks or mutual funds."

Mr. Fraser also urges people to pay down high credit-card debt. "That saves you money," he says, perhaps more than a mutual fund return.

But if you want to use your money soon, say for a home down payment in two years, the stock market probably carries too much risk.

A bank CD or money-market mutual fund will keep your principal safe and earn inflation-beating interest.

But avoid bank savings accounts, many experts say. They often fall short of inflation.

If you feel the urge to splurge, experts suggest a purchase that could produce income or appreciate in value: new paint for the house, snazzier shrubs for the lawn, a souped up computer or phone system that can handle conference calls. A car tuneup can reduce repairs down the road.