ower interest rates are great if you're thinking about buying or refinancing your home. But it's bad news for those who need to receive income from their investments.

Investors in their accumulation years should focus on portfolio growth. That means investing in stocks. And the last decade has been a happy one for these investors. But if you're a retiree and you rely on income from your investments - or you have a parent, grandparent or friend who does -the last several years have been difficult ones.

In this low interest rate environment, many financial planners juice up income portfolios by adding conservative stocks, a smattering of utilities and some real estate investment trusts (REITs). So should others who need income from their investments.

First, a quick primer. All investments are split broadly into two categories: those that provide investment income and those that provide the potential for investment growth. Bank passbook accounts or bank certificates of deposit are income investments.

If you put $1,000 in a one-year bank CD that pays 6 percent, your $1,000 will earn income of $60 in one year. But your principal amount - the $1,000 - will still be the same. Your principal will also be totally safe during the year. Assuming you used a bank insured by the Federal Deposit Insurance Corp., the federal government guarantees it. Guaranteed income and low risk are the hallmarks of conservative investing.

Now consider the real estate investment you made in your home. It provides no income. But it might provide spectacular growth. Or it might result in a spectacular loss.

Suppose you make a down payment of $20,000 to buy a $100,000 home. The $20,000 is your investment. Let's suppose you sell your house in five years for $150,000, or a $50,000 profit. Your $20,000 investment has provided you with a 250 percent return. That's growth!

Most investments are not so straightforward. But they all mix elements of income and growth. For example, although stocks are growth investments, many large, established companies pay dividends. The dividends are income. So a dividend-paying stock is part income, part growth. Some investors like stocks that pay high dividends for just that reason: They feel the income element provides some cushion against volatility.

A bond, too, is a hybrid investment. A bond is a loan and if you buy one, you're the lender. You've loaned some government or corporation money. Each bond has a face value, generally $1,000. The bond issuer promises to repay the face value at maturity. In the meantime, the issuer promises to pay the bondholder a specified rate of interest, which is called a coupon.

Bonds were once as simple as that - a straightforward income investment. But the extreme volatility in interest rates over the past couple of decades has resulted in big gains and losses in principal on bonds as well. If interest rates go up, the $1,000 bond you bought at 6 percent interest will be worth less. If rates go down, your bond will be worth more. Bonds, too, combine income with growth - and with risk, or the possibility of a loss.

Bonds are still the best-known income investments. But using them is problematic. The most convenient way to invest in bonds is with a bond mutual fund. But it may not be the best. Bond funds carry high expenses, which cut into their returns. The fees depress the yields year after year, making them "less attractive the longer they are held," according to a study by New York bond dealers Gabriele, Hueglin & Cashman.

Further, bond funds are inconsistent performers, making it difficult to select one winner from a bad batch, according to a study by Lewis J. Altfest, a financial planner and professor at Pace University in New York.

"There are no Peter Lynches in the bond market," Altfest says. "There are no bond funds that consistently outperform the average." In fact, a study by Altfest showed some consistency in the performance of other mutual funds, but none in bond funds. "One bond fund manager was just as good as another," Altfest said. "And no one could outperform the indexes."

There are just a couple of bond funds I would consider. The first is Spectrum Income, a fund that combines nine other income funds managed by T. Rowe Price Associates in Baltimore. It includes several different types of bond funds, including an international bond fund, a high-yield or junk fund and even a smattering in emerging markets bonds. About 15 percent of the fund is invested in T. Rowe's Equity Income fund, a top-notch conservative stock fund. The yield on Spectrum Income for 1997 was 6.21 percent.

The other possibility is to choose one of the no-frills bond funds from investment houses such as the Vanguard Group. If you buy Altfest's argument that a good manager can't add a lot in the bond market, the best strategy is to cut expenses so that you're not losing your return to fees.

Microsoft Investor subscribers can put this theory to test by clicking on its Investment Finder and using the following criteria to search for income-related investments: Select mutual funds and then select expense ratios as low as possible with three-year returns as high as possible with general obligation holdings as high as possible.

Using that criteria, Franklin AZ Insured Tax-Free Income came up on top. It had a three-year return on investment of 11.29 percent, with an expense ratio of 0.25 percent.

Perhaps a better option is to buy bonds yourself, direct from the U.S. Treasury, with no fees or commissions. The shortest-term Treasury securities, which are called bills, have maturities from three months to one year and carry a $10,000 minimum investment. Treasury notes with maturities of two and three years carry a $5,000 minimum. Longer-term notes and bonds, which have maturities of 10 years or more, carry a $1,000 minimum. You can buy them over the phone by calling Treasury Direct. There is no state or local tax on Treasury securities.

Bob Winfield, a planner in Memphis, uses a strategy called "laddering," or buying bonds with staggered maturities, for clients with specific income needs. For example, he recently set up a portfolio for a retired client with a $50,000 bond set to mature in the first year the client needed income, with another bond to mature in each of the following 19 years. The $50,000 was inflated to allow for inflation. The remainder of the portfolio was invested for growth. "This gives him a certainty of receiving $50,000 in income for each of those 20 years," Winfield says.

Some planners, like Jane King in Boston, don't use bonds at all in income portfolios. "I don't think you have to give up growth to get income," King says.

Say a client needs an income of $1,000 a month. King invests the money in growth funds like Harbor Capital Appreciation, and funds with an income component like Vanguard/Wellesley Income. She once tried utility funds but found them too sensitive to interest rates. Now she uses funds with a heavy weighting in utilities such as Robertson-Stephens Partners. "The sector weighting of the S&P 500 is 2.63 percent utilities," King says. "This fund has 7.1 percent in utilities." The income component provides some ballast for her portfolio.

Then she sets aside six months' income - in this case $6,000 - in a money market fund. And she regularly trolls through the portfolio to see where she might want to raise cash.

For example, when her asset allocations get out of line, she sells something to raise cash and puts it in the money market fund for income payments. "Or I might look to see whose hands are getting cold and what I might want to sell next," she says. "That way I can have a total return portfolio and still pay a check each month."