Q: I have a $125,000, 30-year mortgage with a fixed rate of 6.125 percent. My son will start college in 2013. I wish to have my mortgage paid off by the time I retire in 2019. I also have a home equity line of credit of $22,000, which I hope to pay off by July 2009, after which I can contribute $1,500 per month to 529 accounts for my kids. I can tap into mutual-fund accounts for about $60,000 after capital-gains taxes. If I use that to pay down my mortgage in September 2008, then I can have my mortgage paid off by July 2017. In addition, I have been told that by cashing in my mutual-fund accounts, I will have fewer assets that will be used in the federal student loan application to calculate my portion of the college costs. Is this a viable strategy?

J.G.K.

A: Kyle Meyer, a financial planner in Lincoln, Va., would want a more comprehensive look at your financial situation before recommending you pay off your mortgage. But Meyer, a registered investment adviser with the National Association of Personal Financial Advisors, says he definitely would not do this for college financial aid reasons.

"It’s a long time until 2013," he says, "and the strategy you mention may not work as well for a private school that may take into account factors that a public institution would not."

"What happens if the child gets accepted to the Massachusetts Institute of Technology or another elite school?" asks Meyer.

In his experience with college planning, Meyer thinks you can make decisions with the idea they may positively affect the aid application, but they should not be the main driver.

Meyer notes it’s better to save in a cost-effective 529 plan. These state-sponsored higher education investment plans will give assets in them a favorable tax treatment from a financial aid perspective.

Windfall coming? Think diversification

Q: I am due a $1.25 million windfall from the sale of a work of art acquired generations ago. I am an older man, no longer sharp enough to play with money. People I have spoken with about what to do with the money want me to put it in the bank or stocks. One person mentioned tax-free bonds. An online bank tells me they can put $100,000 – their limit – into a euro currency Certificate of Deposit, and it will be FDIC insured. This way I could take advantage of the dollar’s decline against the euro and earn about 2 percent on the CD, without worrying about losing my money. I can see no reason the dollar won’t continue to decrease in value against other world currencies in the next year. At that time I could convert to dollars if I chose that option. Are there other banks that also do this foreign currency CD, FDIC insured thing? I would need a dozen CDs.

P.B.

A: Betting on the direction of currencies is a treacherous business, warns Lewis Sisich, a partner at Washington Investment Management in Spokane, Wash. No one really knows where the euro will head next, he says. Even if you buy another 10 or 11 euro-denominated CDs you will have made only one type of investment, euro CDs.

Sisich’s recommendation would be to diversify. One way to simplify this process is to use four major options of where you could put your money. The most conservative approach, Sisich says, would consist of the following:

1. Capital protection account. This would include taxable and nontaxable money-market funds, short-term bond funds, and Treasury bills. These investments generate current income, have a low degree of volatility, and a high degree of liquidity.

2. Market-risk account. This would focus on long-term high-quality blue-chip stocks or mutual funds. It would also include income and growth mutual funds or professionally managed portfolios.

3. Capital-appreciation account. Since other parts of the world are growing faster than the United States, mutual funds that specialize in these areas offer good opportunities to add value to your overall portfolio without having to make individual country bets.

4. Opportunistic account. These type of investments would be precious metals such as gold and silver, art, sector-specific mutual funds, or high-yield bond funds. They have more volatility and risk but much higher rewards.

Got a question? Submit it to Steve Dinnen at money@csmonitor.com. Dinnen’s Financial Q&A column appears the first week of each month.