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Editor’s Note: Got a question about Mutual Funds? MarketWatch reporter Craig Tolliver, who regularly writes our column, will try to find answers to as many as possible. Send your questions to Keep in mind these comments aren’t intended as a substitute for advice from a financial professional familiar with your circumstances.

I have been hearing that there are mutual funds available for penny stock investing. Would you please mention a few of these. I have no idea where to look for such a fund, nor how to judge whether a fund is well run. —Nita

CBSMW: While he knows of no mutual funds investing in penny stocks, Edward H. Foster. Jr. chief investment strategist with Fabian Investment Resources. can’t say he’s surprised.

First, penny stocks lack the necessary liquidity needed for mutual fund managers. Second, mutual funds have not seen overwhelming interest from investors to venture into this risky segment of the market. Since investor demand dictates new fund launches, I really don’t think that the large mutual fund families will look at this segment of the market, Foster explains.

Unfortunately, to reach your goals, you would most likely not sleep a wink for the next 5 years. Matthew J. Lum, Certified Financial Planner

Foster understands the fascination with penny stocks, however.

Many investors may feel as if they’ve missed the Nasdaq $compq boat the past couple years and want to play the catch-up game by investing in penny stocks. I think the average mutual fund investor would be better off investing in small-cap or micro-cap type funds like the Berger Small Company Growth Fund (BESCX) or the Wasatch Micro-Cap Fund (WMICX). says Foster.

Mutual funds addressing the micro-cap market are about as close to penny stocks as you’re going to find, suggests Foster. When investing in these types of funds, Foster cautions that expenses are going to be higher than the average domestic mutual fund and volatility could be significantly higher.

Both Berger Small Company and Wasatch Micro-Cap invest in companies I’ve never heard. You are not going to find a Microsoft or an Intel in these funds. Therefore, all that really matters when choosing these types of funds is performance on the short-term. Both of these funds are showing solid performance over the past 1, 3 and 6 months, and this is the simplest way to invest in this sector of the market.

Now to get into these funds, or any fund for that matter, at a penny stock price, see if they offer an auto-investing program. While both of the funds suggested by Foster normally require a minimum investment of $2,000 to get started, Berger will drop the minimum to $100 if you agree to invest an additional $100 a month until the $2,000 minimum is satisfied. Wasatch will reduce its minimum to $1,000 based on a monthly investment of $50.

I’m in declining health at 44. I have approximately $90,000 to invest and would like to have $500,000 to $700,000 in the bank 4 to 5 years from now — and still sleep between now and then. I have bone joint problems and if I’m going to enjoy a year or two of taking it easy, I won’t have the luxury of time. I do have a family and don’t want to risk my wife’s retirement either. What would you do if you were in my shoes. —Les

CBSMW: Unfortunately, the best answer is not always the one that we want to hear.

We put your question to Matthew J. Lum. certified financial planner from Santa Barbara, Calif. In his opinion, meeting your goals of both rapid growth and low risk are simply unrealistic.

Unfortunately, to reach your goals, you would most likely not sleep a wink for the next 5 years. For your $90,000 to grow to $500,000 in 5 years, you would have to achieve a 41 percent average compound return, which I feel is totally unrealistic. In fact, for you to reach your goals while realizing a more realistic growth rate of 10 percent annually, you would still need to invest an additional $52,000 each year! says Lum.

Given your current set of circumstances, Lum first recommends checking with your employer on the integrity of your health and disability insurance. Then, because of this very brief time period, he suggests lowering your expectations to a more modest 10 percent annualized return, which puts your $90,000 at $145,000 in 5 years. Risking the little that you have in favor of an aggressive growth posture is probably not in your best interest.

At your present age, and assuming your condition is not terminal, Lum recommends an asset allocation plan consisting of 40 percent US Stocks, 25 percent International, 20 percent Small Company, and 15 percent Technology.

This would give you a 100 percent exposure to equities, while minimizing the risk of having all your money invested into one lagging portion of the market. I typically don’t recommend a specific technology stake, but considering what you have to do to get anywhere near your goals, having some specific tech exposure in a technology fund is so much better than putting it all into a single stock like AOL, Yahoo, Akami, or Microsoft. For domestic stocks, Lum suggests taking a look at Investment Company of America (AIVSX) or Davis New York Venture (NYVTX). On the international front, his personal favorite is the EuroPacific Growth Fund (AEPGX) but also recommends Janus Worldwide (JAWWX) as a good no-load alternative. Lum likes Franklin SmallCap (FRSGX) for smaller companies, and Seligman Communications & Information (SLMCX) for technology.