Dear Dr. Don, My wife and I would very much appreciate if you could provide a prescription for our portfolio, which has been beaten down in 2000. The money in our portfolio, in varying degrees, will be used to fund three very different goals. They are: We would also welcome any comments you may have on how we can best optimize our use of capital. We are in a dilemma over how much we should put down on the house and cars vs. how much we should keep invested. Ideally, we would like to keep between $75,000 and $100,000 invested for the mid- and long term. Background Information: I am 33 years old and my wife is 28. We are both living and working in Sydney. I am a U.S. citizen and my wife is Australian. I make approximately $89,000 in U.S. dollars per year (not including cash and stock bonuses, which historically have been between 15%-20% of my salary, plus stock options). My wife makes the equivalent of approximately $35,000 in U.S. dollars. We plan to move back to the U.S. in the next 3-6 months. I will have employment with my current employer; my wife will be seeking employment. We have no kids. My 401(k) retirement assets are slightly in excess of $45,000. I also have approximately $6,500 in an employer-sponsored international superannuation plan. Both plans are 100% invested in diversified equity funds. I have no Roth or traditional IRAs. I cannot contribute to a 401(k) in the U.S. I have opted to not contribute money to my superannuation plan in Australia. My Australian employer contributes some money on my behalf to the plan. We have no debts, other than small amounts on our credit card, which we pay off in full every month. We have been saving between $3,000 and $4,000 a month. Thank you, RU

Short-term (3-6 months): home purchase down payment (of a home valued up to $300,000) and two used car purchases (combined total of no more than $25,000)

Mid-term (19-25 years): God willing, finance the college educations of up to three children.

Long-term (25 years plus): retirement and purchase of a second (vacation) home in Sydney, Australia.

RU,

The nearer the goal, the less risk you should take on in the money you're investing for that goal. If you're buying a home in the next six months, that's reason enough to keep a healthy cash position. Putting aside $3,000-$4,000 every month will certainly add to that war chest. You didn't say where you'll be settling in the U.S., but I'll assume that you know the real estate market in that area well enough that your housing estimate is realistic.

Investing to pay for college educations of yet to be born children gives you a fairly long investment horizon. That's almost as long as your retirement investment horizon. For both goals, a mix of stocks and mutual funds makes sense.

You've got some big positions in individual companies. If you feel strongly about an industry's prospects, then own a sector fund for that industry. If you think that the company will outpace its peers, then own the stock. Ignoring your option positions for the moment, you've got 1/3 of your money in individual stocks. Add to that the 25% of your portfolio that you have invested in cash. I'd like to see you reduce your exposure to individual holdings.

Because you didn't provide me with your retirement holdings, I inserted two hypothetical positions to reflect those assets in your portfolio. I like to take a holistic view of an individual's portfolio and can't make recommendations while ignoring a portion of your financial assets. While we're on this tack, you need to consult with a tax professional before exercising any vested options. Having two large option positions in your company's stock makes for a strong argument against holding additional shares of the company stock in your taxable account.

Car loans got a little cheaper this week with the

Federal Reserve's

50 basis-point reduction in the Fed Funds rate. Mortgage loans should benefit from the cut as well. So you're coming home at a good time to borrow money for your major purchases. If you use the mortgage interest deduction on your taxes, then your home's mortgage will be your least expensive source of funds.

You'll need 20% down to avoid paying private mortgage insurance on your home. You can get around the need to plunk down $60,000 in cash as a down payment by using an 80-10-10 program. The first mortgage is for 80% of the home's value, you put 10% down and you borrow 10% on a second mortgage. The second mortgage will have a higher interest rate but as long as the additional (after-tax) interest expense is less than the PMI premiums you come out ahead. Your lender or real-estate agent can help you do the math to see if an 80-10-10 mortgage makes sense.

Buying used cars lets the first owner pay for the majority of a car's depreciation. Used car financing is readily available, but the interest expense won't be tax deductible unless you use a home equity loan and you can use the deduction.

Your residence is more than just shelter; it's also an investment. Like most homeowners, you'll be leveraging that investment by taking out a mortgage. So don't look at the down payment as taking money from your investments; you're just expanding your investments to include real assets. I don't know anything about real estate in Australia, but think about whether it makes sense to buy property in Australia sooner rather than later.

Dr. Dr. Don Taylor has been an investment professional for nearly 15 years, most recently as the treasurer for a nonprofit organization where he managed more than $300 million in assets. He is a chartered financial analyst, holds a Ph.D. in finance and has taught investment and personal finance courses at the University of Wisconsin and at Florida Atlantic University. Dr. Don's Portfolio Rx aims to provide general investing information. Under no circumstances does the information in this column represent a recommendation to buy or sell. Dr. Don welcomes your inquiries and feedback at

portfoliorx@thestreet.com .