STEP 1A

Setting your goals

(Skip this step if it’s slowing you down and you haven’t started investing yet. Begin making investments now and come back to this step later. There’s plenty of time ahead to refine your strategy. The reason for quick action: Time is on your side if you invest early.)

To get what you want out of your investments, you need to know the specific goal or goals you are investing to achieve – your child's college education, retirement? The appropriate type of investment will vary, depending on how much time will elapse before you need the money. If you have several investment goals, you should make separate investment decisions for each and keep track of each one separately. These Web sites will help you think through your goals in investing  for:

College:

• SmartMoney on College Planning

Retirement:

• FinancialEngines, established by Nobel Prize-winner William Sharpe
• SmartMoney on Retirement Planning

STEP 1B

How much risk can you stand?

(Skip this step if it’s slowing you down and you haven’t started investing yet. Begin making investments now and come back to this step later.)

Estimating your tolerance for risk will help you choose which types of investments are right for you and which ones would give you nightmares. Just don’t think you can eliminate risk. That’s impossible. All types of investing carry some degree of risk, and not investing is even riskier.

Begin by learning about the various types of financial risk that exist in the world, from inflation risk to the risks of stock and bond prices. At first you might think you'd be uncomfortable with anything riskier than a bank CD, but you might well change your mind after you consider the long-term risks of such low-yield investments. Here are some sites that will help:

• A site that lets you test your tolerance for financial risk.
• An interactive chart (part of a SmartMoney “Investing 101” article) that shows how longer-term investing decreases risk.
• Also from SmartMoney, a quiz that teaches about risk and how to minimize it.

STEP 1C

Dividing up the money

After considering how much time you have to invest (Step 1A) and your tolerance for risk (Step 1B), you’re ready to calculate how best to allocate your money among various types of investments, such as stocks, bonds and CDs. Studies have shown that this decision will be by far the dominant factor in determining what you get out of your overall investments.

These two Web sites can guide you in this decision:

• The Fidelity Investments “Asset Allocation Planner” and 
• The “MSNBC/MoneyCentral Asset Allocator,” located in the Personal Finance section near the bottom of the MSNBC Investor Toolkit page.

You’ll end up divvying up your investments into categories such as:

Stocks. Historically, stocks (or, more precisely, stock mutual funds) are the best choice for long-term investing. They rise the highest, but fluctuate the most on the way up.

Bonds. As the time draws near when you’ll need to start cashing in your investments, it becomes increasingly important to invest in bonds. That’s because you run out of time to make up for fluctuations of stock prices.

Cash, including CDs and money-market funds (for flexibility and for emergencies).

Sensible-Investor has some specific recommendations on how to choose particular investments in each of these categories.

STEP 2

Dividing up the money more finely

Don’t put all your eggs in one basket -- in other words, in financial planning jargon, diversify.

For stocks, you can accomplish this easily by investing in mutual funds, and making sure that you don’t invest in two mutual funds that mostly own the same or similar stocks.

When you expand your investments into bonds, diversify there too. To learn how to do this, see Sensible-Investor’s recommended Web sites about bonds.

STEP 3

Need advice?

Sometimes you find you can’t do it on your own. That’s when you should consider seeking advice from a professional financial planner. If you don’t know anyone who could personally recommend a nearby adviser, the Financial Planning Association has a PlannerFind program that will help you find a planner near you.

STEP 4

Check back later

Every 12 months or so, reassess your financial position and your progress toward your financial goals. Make adjustments, as appropriate.