Q. I am starting over after losing in real estate. I am looking for some inexpensive investments, like penny stocks. Recommendations? —Gary Hancock, Yellville, Ark.

Are you a gambling man? That’s what investing in penny stocks usually amounts to. They’re typically issued by very small companies and have share prices below $5. Research is often slim or nonexistent, and trading volumes can be light. In other words, they’re high risk. An investor looking to rebuild wealth is far likelier to succeed with a well-diversified portfolio. One option: Start with a low-cost balanced fund (one with a mix of stocks and bonds), and add to positions when you can. You won’t get rich quick, but you won’t lose your shirt either.

Q. With Vanguard offering no-commission ETF trades, should I convert my index funds to their ETF equivalents? —Chad Warner, Holland, Mich.

Commissions are a potential drawback of investing in exchange-traded funds, but now a handful of firms-including Charles Schwab, Fidelity Investments and Vanguard-offer commission-free trades to their brokerage clients for select ETFs. (Exchange-traded funds are similar to index mutual funds, but they trade during the day, like stocks.) This, combined with the dirt-cheap expense ratios of most ETFs, could be tempting. Vanguard’s Total Stock Market Index fund (VTSMX), for example, has an expense ratio of 0.18 percent, while the ETF equivalent’s is 0.07 percent.

Those holding index funds at Vanguard can convert them to most of the 46 ETF equivalents without owing any fees or taxes, since the ETF is just a different share class of the corresponding index fund. But consider whether it’s worth the trouble; people who don’t already have a brokerage account would have to open one for the ETF. If you’re changing investments-meaning selling out of, say, one index fund and buying into an ETF that follows a different index, or moving assets from elsewhere-consider the other potential costs, such as taxes or redemption fees. With ETFs, watch the spread between the bid (the price a buyer is willing to pay) and the ask (the price at which a seller will sell), which can also eat into profits, warns Mark Salzinger, editor of The Investor’s ETF Report. Bottom line? Crunch the numbers to see if you’ll really come out ahead.

Q. My 88-year-old mother owns stock with a low cost basis. She’s in a low tax bracket. Is it better for her to sell some stock now and pay capital gains taxes, or for the heirs to inherit it? —Marie Baumann, Arlington, Va.

Estate tax rules are going through more ups and downs than an accountant on a roller coaster, making estate planning tough. If Mom doesn’t need the money now, the better tax strategy is probably to leave the stock as an inheritance, says Mark Steber, chief tax officer for Jackson Hewitt Tax Service. For inherited assets like stocks (not held in an IRA), your starting point for taxable gains-also known as the cost basis-is usually the fair market value as of the date of death. But if the appreciation on the estate’s assets is greater than $1.3 million, you could owe taxes on the excess. Of course, in 2011, the rules change. Long story short: If the estate is sizable, find an excellent accountant.

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