INVESTMENTS COME IN THREE CHOICES

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

What goes up must -- come down -- unless you're talking about income.

Ask anyone how much income they'll need 10 years from now, and their answer will surely be: "more than I earn now." Everyone needs increasing income -- not just while your family is growing, but also in retirement, when your expenses might be lower. The reason: inflation.

Even with the best control, a certain amount of inflation is built into our economy. To maintain your standard of living, your income should increase each year.

Working Americans are typically rewarded with wage increases that meet or exceed inflation. Those planning for retirement, however, must create an investment plan that will provide increasing income. As life spans continue to increase, it's more crucial than ever to devise a plan that not only will allow your money to grow enough to meet rising living costs during retirement, but also to last at least as long as you do.

Achieving this goal requires choosing the right mix of three income flavors: variable, fixed and growing.

Some of today's most popular investments offer variable income. Savings with short maturities, such as U.S. Treasury bills, bank certificates of deposit (CDs) and money market accounts, pay income that fluctuates.

Typically, these short-term investments guarantee your principal, so they are ideal for meeting short-term needs. However, they might not be appropriate for long-term goals. For example, a $100,000 investment in three-month T-bills for the period Jan. 1, 1976, through Dec. 31, 1995, would have provided dramatically -- fluctuating income, from a high of $14,662 one year to a low of about $3,600 another. It's hard to budget on fluctuation like that. It's even harder to live on it.

One solution to fluctuating income is fixed-income investments. These include Treasury, corporate and municipal bonds. They guarantee a return of principal if held to maturity, and a fixed-interest rate, which generates a stable income, usually paid semiannually, while held. The guarantee that you'll get your money back is attractive, but the fact that your income won't rise means fixed-income investments should not comprise your entire portfolio.

For example, a $100,000 investment made Jan. 1, 1976, in a 20-year Treasury bond guaranteed annual fixed income of $8,000. When returned 20 years later, the $100,000 investment had lost about half of its buying power. Not only did the income lose the race against inflation, so did the principal.

The third type of income is growing income. Investments that offer the potential for growth -- such as stocks and mutual funds -- offer no guarantees, but historically they have been rewarding.

Many excellent companies have grown and prospered over the years. As corporate profits increase, companies typically pay higher dividends to shareholders. A hypothetical $100,000 investment in U.S. stocks as represented by the Standard & Poor's 500 Index for the same 1976 to 1995 period would have produced annual dividends growing steadily from about $4,000 in 1976 to $15,291 in 1995.

A successful investment, just like a good recipe, requires the right mix of flavors. Make sure your portfolio includes a balance of short-term, fixed-income and growth investments, and you'll be rewarded with your just desserts.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.