Be sure to size up the risk in an investment
''You have to protect yourself against your own judgment.'' That, says Joseph A. Boccuzzi, is why it is important for investors to take the time to figure out how much risk they can handle. If they don't, they could get into investments that are either too risky for them or that do not have enough risk to give the rewards they expect.
Even though the bull market in stocks seems to be slowing down, notes Mr. Boccuzzi, vice-president of equity product marketing at Merrill Lynch, Pierce, Fenner & Smith Inc., he and many other investment advisers still believe it has quite a way to run. So staying with an investment, or getting into a new one, requires an understanding of the risks involved, as well as some courage.
Boccuzzi points out, however, that ''regardless of the market conditions, you should understand the risk you're taking. It's not a matter of a bear or bull market.'' Risk, he notes, means that there is a possibility of loss, not a guarantee of it.
When he talks about risk in investments, the subject of options and futures often comes up. Clearly, he is comfortable with these kinds of investments, but he knows that many people are not, even that many are not comfortable in the stock market.
''If you want absolutely no risk,'' he says, ''you should buy US government bonds . . . because the government is the only agency that can print money, so it is the only one that can guarantee payment.''
Otherwise, Boccuzzi says, people need to have some way of gauging their risk tolerance. To that end, he has come up with eight guidelines for assessing risk:
1. Assume only definable and understood risks. To do this, people should ask questions like: How does the investment work? Do the people or firm offering it have a good background? How much can I expect to make or lose? How long do I have to wait before I know about my losses or gains? What are the state and federal tax consequences of any risks or rewards?
2. Know the risk/reward balance. Do not invest in anything where the degree of risk is greater than the potential reward.
3. Think in ''what if'' terms. If you understand how changes in the marketplace can affect an investment (how will a jump in interest rates affect bank stocks, for instance), you will have a better idea of just how much risk is involved.
4. An investment doesn't know you own it. Being impersonal, a stock cannot give the investor any loyalty, so the investor should not feel any loyalty to the stock. If you don't like what's it's doing now - no matter how well it did in the past - there's no good reason to keep it.
5. Know when to cut your losses. If you can give a declining stock a ''decent interval'' to improve, Boccuzzi says, you should do so. Otherwise, be willing to lose a little money before you lose a lot. ''People get emotional about these things,'' he adds. ''They say, 'I bought it. It will go back up. I'm sure it will.' They get attached.'' But often, investments don't pan out. When this happens, get out and look for something else.
6. Watch your investments. If you are keeping an investment expecting long-term gains, you probably don't have to keep an eagle eye on it for nearly a year. After a year and a day, you may want to consider a decision to sell. But many speculative investments are short term and require frequent attention. With options, for instance, if you do nothing you will lose your investment.
7. Spread your risk by diversifying. ''There are two schools of thought on this,'' Boccuzzi says. ''Put all your eggs in one basket and watch the basket, or don't put all your eggs in one basket. Most investors should not put all their eggs in one basket.'' Spreading your money among several investments is the best way to minimize risk.
8. Act only on reliable research and information. Not surprisingly, Boccuzzi believes brokerage house research and reports are among the best sources of this information. But, he adds, ''there are also lots of investment newsletters that can help.'' Whatever, he cautions, don't buy an investment just on ''Uncle Harry's'' recommendation. ''Uncle Harry may be right, but you should still do the research.'' Telephone 'hookup' charges
I am considering buying or renting a telephone. Are there ''hookup'' charges? Does the phone company have to come and install the phone, depending on whether it's Touch-Tone or dial? If you move, do you face repeated hookup charges? Is there still a monthly ''wire maintenance'' service charge? - G. C. G. A lot of the rules of the telephone game have changed in recent years. Several of the changes let people do more things with their phones for free. One of them is hooking up a new phone. If your home is already wired for modular phones (the phone cords have little plastic clips that plug into jacks in the wall), you can buy a phone from the Bell System or some other company and plug it in yourself at no charge. If you're handy, you can even adapt an old-style, four-prong jack to accept modular phone clips. The phone company has instruction brochures, and manuals are available at most bookstores. There are even simple directions in the front of some phone books.
Of course, if your house is not wired for a phone, or if you need phone lines in other rooms, the phone company will send someone out to do this. When you move, there will be a charge for starting a new phone service, as well as a monthly service charge.
When the breakup of the American Telephone & Telegraph Company becomes official Jan. 1, there will be many other ways consumers can save on equipment charges like these, although monthly service charges, such as for access to long-distance services (like MCI, Sprint, and, for that matter, AT&T), and charges for local and long-distance calls, may go up dramatically.
If you would like a question considered for publication in this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.m
