What do you do with $1 million?

While not a universally shared problem, it is an issue often considered by the rich and poor alike. One school argues for the quick jaunt to the track, Atlantic City or the corner bookmaker.On the other end of the spectrum is the U.S. Trust Co. of New York, a sober institution that has been overseeing the holdings of many of this city's best-endowed heirs since 1853. Since capital retention is one of the primary objectives at the blue-blood bank, neither the track nor the croupier's table play a part in its advice, though some facets of gaming are at least theoretically applicable.

"If a client walks in with $1 million, their first question is frequently, `How much can I make?' " said chief investment officer Frederick Taylor. "What we ask is, `How much are you willing to lose?' and the client frequently says, `Nothing.' "

Few investments offer such pristine guarantees. Since 1926, however, stocks have provided an average of 10 percent annual return, and since World War II closer to 14 percent. Bonds have provided significantly smaller returns.

The message, Taylor said, is that over the long term it is better to be an owner than a lender, even if lenders are now receiving "excellent, competitive returns" because of the surge in interest rates. For even his most conservative accounts, he recommends keeping 50 percent in stocks, with 30 percent in bonds of medium maturity (five to 10 years) and the remainder in cash or easily traded government securities maturing in less than two years. For the most aggressive investors, he suggests 70 percent in stocks, 10 percent in bonds, and 20 percent in cash.

Unlike many small investors who have been pouring money into the shortest-term instruments because they currently offer such high rates, those following U.S. Trust's advice are more aggressive about stocks. Taylor said the cash portion of portfolios is maintained "only as a nice resting point. When short-term yields are attractive, such as in 1981, it is frequently time to look long into stocks and bonds."

Moreover, many stocks now yield 5 percent, 6 percent or 7 percent, with the potential for dividend growth and capital gains. "I want to participate if, wonder of wonders, things do well over time. People forget, that is what generally happens," Taylor said.

In a shift from traditional U.S. investing patterns, he said investors are wise to diversify internationally by putting five percent to 15 percent of their money into foreign securities. That may lead to more volatile shifts in the worth of one's holdings but ultimately provides better returns.

More traditional areas of diversification may no longer be appropriate, particularly gold and real estate, which boomed during the inflation-rent 1970s as financial assets languished, he said. "I'm not confident the big worry in the 1980s or 1990s is inflation," Taylor said. "I'm more worried about a recession."

Despite recent inflationary readings from several well-watched barometers, gold - a traditional hedge against inflation - has remained in a three-year slump. And real estate price appreciation has slowed. "We're not afraid of it (real estate), but it is not a panacea," Taylor said. Some areas remain attractive, but many other once-promising regions have been overbuilt.

Moreover, Taylor said that a review of a client's holdings often shows that certain hard assets have already been acquired, though they may not have been purchased as investments at the time. "It's the picture hanging on their wall, their city home, their summer house," he said.

For the long term, he believes common stock investments guided by several pervasive themes should prevail.

Foremost among these themes is the search for sound companies with either global franchises or solid domestic franchises. Coca-Cola, McDonald's and similar companies all have good returns, pricing flexibility, world markets and no direct competition from low-cost foreign producers. Similarly, among the domestically oriented companies, he likes ones such as Hartford Steam Boiler Inspection and Insurance Co., which dominates the insuring of boilers and machinery.