Money is inextricably linked to our present well-being, indisputably connected to our future, and irrefutably associated to a mounting source of frustration. Whether you are a rising corporate executive, a veteran blue-collar worker or a recent college graduate, odds are that money, its presence or lack, is of paramount concern. Money is, as has been said, “a resource of epic use in a society destined to misuse it.”

But money doesn’t have to be the thorn in your side. It is the correct use and understanding of money, regardless of the amount you currently have, that will ultimately make the difference in your bottom line. A clear understanding of and action upon the relationships among credit, debt, and saving will transform your financial picture, and your life, from just-getting-by to getting ahead. Read the full story

While earning her Master of Business Administration degree at the University of North Carolina-Chapel Hill, Bridgette Young hoped her concentration in human resource management would lead to a lucrative career in corporate America.

When she graduated in 1985, Young went to work for Baxter Healthcare Corp. as a human resources manager. Three years later, she moved on to become a human resources manager for Taco Bell, where she oversaw the restaurant chain’s staffing in North and South Carolina.

In 1990, just five years into her career, Young became ill and was diagnosed with lupus. After a year on disability, she was able to return to work and was offered a position as a human resources director with Coca-Cola in Atlanta. But Young decided to change her direction and chose not to take the job. Instead, she opted to enter the ministry and use her MBA training for the church. After obtaining her Master’s of Divinity in pastoral care and counseling, she went on to oversee the ministries and staffs at Cascade United Methodist Church and, later, Mt. Bethel United Methodist Church. Both are “mega-church” congregations in the Atlanta area, with a membership of about 7,000 each.

“I realized I no longer loved what I was doing and it was no longer consistent with what my value systems were,” Young says. “I wanted more than just working 12 hours a day for a big paycheck.” Read the full story

When I attend graduation celebrations, I’m sometimes asked for investment advice. The graduates assume I can help them identify the next Google, or at least help them direct their meager capital into the fund of a latter-day Warren Buffett.

While I’m happy to oblige, I rarely fail to disappoint. My advice contains no hot tips or special insights possessed only by the chairmen of investment management companies. Its sole redeeming virtue is that it has worked. The following straightforward principles can help recent graduates (and, indeed, people of all ages) save and invest their way to financial security.

1. Live Below Your Means

You have to spend less than you earn. This is critical for anyone, but recent graduates are in a better position than the rest of us to make this habit stick. Start on Day 1—when your conception of “the necessities” tends to be more modest than it might be in later years—and you’ll learn to live below your means forever. The longer you wait, the tougher it gets.

The investment benefits are self-evident. If you don’t save, you can’t invest. But living below your means also provides protection from volatility in your personal financial situation. If you suffer financial setbacks—job loss, unexpected health-care costs—you’ll be better positioned to weather those challenges than people who habitually spend every penny they earn.

2. Have a Strategy and Get It on Paper.

This will be your investment portfolio’s business plan, if you will, in which you state your investment goals, keeping in mind that the more specific you are now, the better off you’ll be down the road. “Supporting myself in retirement” is a start, but “generating inflation-adjusted income of $50,000 per year” is much better. You may have several goals, so be sure to specify each.

In this plan, decide how you’ll structure your portfolio to achieve these stated goals. Your primary decision is your portfolio’s asset allocation – the appropriate mix of stocks, bonds, and money market funds. This decision is driven by your investment objectives and tolerance for short-term volatility in the value of your assets.

Finally, think about the ongoing management of your assets. It is a good idea to set a schedule for rebalancing your portfolio to its target allocation and review the funds used to implement your allocation. Periodically check the progress toward your goals to determine whether you’re still on track or need to make modest adjustments to your approach.

3. Participate in The Markets

Until 25 or 35 years ago, it was pretty complicated for Americans to participate in the stock and bond markets. Investing was seen as a pastime primarily for the wealthy. Today, with the advent of IRAs and defined-contribution retirement plans, most people have an opportunity to invest. In fact, investing is the only way for most of us to meet significant expenses such as retirement funding.

That said, your first steps into the markets can be intimidating. Here’s a good example from my recent graduate. My son is pretty financially savvy, but when it was time to enroll in his company’s 401(k) plan, he called me for a second opinion on his choices. I’d have done the same thing at his age.

For many people who are just beginning to invest, a life-cycle fund — a mix of stock and bond funds designed for a particular time horizon — is a great place to start. For others, a traditional balanced fund or a broadly diversified stock or bond fund can get you going, too. But more important than picking the optimal investments is simply getting started.

Once you start investing, you face another challenge: volatility. The financial markets have recently provided a very good illustration of volatility. If you can resist the urge to react to the emotional potholes created by short-term fluctuations in the value of your investments, riding along with (and continuing to invest in) the markets will be a productive experience over many years.

4. Invest Regularly

To emphasize the importance of regular investing, I often tell people about a discussion I participated in a few years ago with some of the Philadelphia area’s best investors, most of whom had enjoyed great business and financial success. The group’s views on financial and investment matters were varied. Discussion and debate were lively. But in the end, I found that everyone agreed on two things: We hate ATM fees (they drive up our costs, so we’ll go out of our way to avoid them), and, more important, a regular saving and investing habit is key to financial success and security.

Regular investing helps you develop the discipline to stick with a long-term investment program through all market environments. It can also reduce the risk (more emotional than financial) of investing a large sum at precisely the wrong time—the 2000 peak of the late-1990s stock market bubble, for example.

Payroll deductions, a feature of most employer-based savings plans, and other automatic investment programs make the mechanics of regular investing simple. I consider newer innovations, such as Vanguard’s One StepTM, which allows 401(k) plan participants to automatically increase their savings rates as their salaries increase, a corollary to compound interest. Together, these forces are a powerful engine for wealth creation.

5. Get Knowledgeable About Financial Markets and Businesses

Become a regular reader of The Wall Street Journal, the business section of your local paper, and the educational material provided by many investment companies. The goal is not to become a professional investor. In fact, if you wind up reacting to what you read in the press or hear on television, you may do yourself more harm than good. Instead, your goal should be to become familiar with the way the markets behave. Over time, this familiarity will help you establish — and stick with — a well-constructed, long-term investment plan.

Simple Principles That Will Stand The Test of Time

Is this advice boring? Maybe. It’s certainly not “plastics,” the pithy career advice immortalized in “The Graduate.” But unlike “plastics,” my advice for recent graduates is timeless and solid. Indeed, I offer more or less the same advice to 32-, 42-, and 52-year-olds—five simple principles that have helped guide hundreds of thousands of Vanguard shareholders to long-term financial security.

A Common Story for New College Grads

When Krystal Moore graduated from the in 2004, the accounting major was expecting a grand offer from a Fortune 500 company with a starting salary at least in the mid-40s. Instead, she found herself working for the state of Louisiana, making significantly less than she wanted in the accounting department at Louisiana State University, Baton Rouge. Moore, struggled to pay her rent, utilities, cell phone, car insurance and student loans on her salary.

Trenice Bishop, 22, knows Moore’s struggle all too well. Bishop graduated from Howard University in 2005 with a degree in television production. When she didn’t get an entry-level position in her field after graduation, she worked part-time as a hostess at a Washington, D.C., restaurant as well as holding a second job at an aftercare program. Overall, she was bringing in about $1400 a month.

“At first I thought I’d be able to maintain my bills,” Bishop says. But with credit card bills, a car note and student loans totaling more than $100,000, she just couldn’t make it own her own and had to move in with her mother.

Saleema Rasheed also thought she could keep up with her bills. When the 25-year-old graduated from Tuskegee University in 2003, she had dreams of becoming an actress and director. Instead, the psychology major had to move back to her hometown of Boston after graduation because she couldn’t find a job.

“I had so many grand visions of what my life would be like,” Rasheed recalls. After a year at home, she moved to New York City to attend film school, but found she couldn’t afford that, either. So she stayed with friends and family before finding a place of her own.

Rasheed worked in theater production and as a teacher and athletic coach to make ends meet. She admits she wasn’t always wise in her spending; when she did have extra money, it sometimes went toward things she really didn’t need. And when her teaching job ended and Rasheed had to live off her savings for two months, she came up short.

“I thought it would be enough,” Rasheed says, “but before I knew it, it was gone.”

She contemplated a return to Boston, instead choosing to move to Atlanta and live with her fiancé. Today, she works as a musician’s administrative assistant, and he sells home security systems. “Between his income and my income, we do fine,” Rasheed says. “But at the end of each month, I’m always short of cash for just little things I want to do. It’s kind of tough.”

Becoming a Financial Adult

The transition from college to adulthood can be overwhelming. For many, it’s the first time in their lives they’ve been out of a classroom, free to plan their days and their futures. And once their work situation stabilizes — whether they’re in that dream job with a good salary and benefits, or waiting tables to make ends meet — knowing how to manage that first regular paycheck is a major lesson of adulthood.

It can be a difficult lesson for recent college grads, whom have had to live on a budget for so long. Now they’re juggling rent, utilities, student loans, credit card bills and other living expenses. And because many will have more money than they’ve ever had before, there’s also the urge to splurge — a fancy apartment, trendy clothes, a new car, a grand entertainment center and expensive furniture. Before they know it, debtors are calling and they’re struggling just to put food on the table.

“Having gone through undergraduate and graduate school, I know the challenges [begin] as soon as you get out of school,” says Lynnette Khalfani, a personal finance expert known as the Money Coach and author of the bestselling book, Zero Debt: The Ultimate Guide to Financial Freedom 2nd Edition. “Some people have the expectation that they will get that great job out of school. Khalfani has some advice for recent graduates — those who have their dream jobs and those who don’t. Whether you’re making minimum wage or enjoying that six-figure salary, there are some money rules every grad should live by.

Here are a few of her tips:

Manage Debt Wisely.

Most college graduates have an average of $20,000 in student loan debt, topped with another $32,000 if they attended graduate school. “You really have to be smart about handling your debt and taking on, in particular, bad debt, such as credit cards,” Khalfani says.

Maintain Good Credit.

“Credit is just as good as or better than money in the bank,” says Khalfani. Credit history can determine how much money someone can make as well as how much one will be able to save throughout their lifetime. A person with bad credit will not get the best deals in mortgages and other loans. Department store cards drag down a credit score, while buying a home improves it. Khalfani also warns that a potential employer can legally inspect your credit history to decide whether or not to offer you a job. “They consider it a reflection of your character, your reliability,” she explains. A current employer can also legally check your credit when considering whether to give you a promotion. “You should jealously guard your credit standing – from your cell phone bill to cable bill to doctor bill,” Khalfani cautions. “Pay your bills on time and don’t max out your credit cards.”

Don’t Live the “Bling Bling” Lifestyle.

“Anybody can bling, from the suburban soccer mom to the urban youth in the hood,” says Khalfani. “Most people spend way more than they earn.” Don’t buy anything you can’t truly afford on a cash basis.

Create a “Millionaire-in-Training” Budget.

Most people think of a budget as restrictive, signifying all the things they can’t have or do. They believe they have to stop doing the things they love. But the “millionaire-in-training” budget, Khalfani explains, allows you to spend money on three essential categories: something you truly need (rent, food); something you truly want (those shoes, that wide-screen television); something of value to you and your family (education). The only rule of this budget? You can’t spend more than you earn. “Your spending should be in alignment with your values,” says Khalfani. “You don’t want a budget where you can’t have any fun. Give yourself permission to have some fun, then spend money on things you truly value.”

Absolutely Do Not Buy a New Car.

“You are literally wasting money,” Khalfani says. A car, she points out, is a depreciating asset. The minute you buy a car and drive it off the lot, it starts to decline in value. Worse, a new car requires more costly insurance. A better strategy is to get a car that is a year or two older, but equally reliable. You’ll still have a great vehicle, but at less expense than a brand-new car. “Don’t let the car drive you to the poor house,” Khalfani warns.

Don’t Procrastinate When it Comes to Saving.

“Most graduates have age on their side, says Khalfani, and they can and should take advantage of their youth. The fact that you can leverage time with compounding interest is important. When you’re 21, 24, even 30 – it’s the time to save a little at a time. As little as $15 a week adds up significantly over the years.

Moore has started saving since she’s downsized her life. She now has a roommate to split rent and share utility bills. Relying on her land line phone, she no longer has huge cell-phone bills. And because she doesn’t have credit card bills, is now able to put money away in a savings account. She admits, however, that nowadays she doesn’t “get to shop like I want to.”

Bishop is on her way, too. She got a job as a production assistant and though she doesn’t have benefits, she lives with her mother to save money. Her advice to recent grads? “Save as much as you can. Make a plan. Don’t just sit on your thumbs. It’s not [enough] just to have a degree anymore,” Bishop urges.

And Rasheed is still pursuing her dream of working in the entertainment industry. “If you look at my bank balance, it may not be the most practical approach,” she says, though she’s calculated the lifestyle cost and found it worthwhile.

What’s truly important is that Rasheed, like Moore and Bishop, has learned many lessons on her journey to adult responsibility. Building wealth involves spending as well as saving, waiting as well as living right now. And as these women have seen, most important of all, it’s about saving before you spend.

The lives of women have changed dramatically over the past three decades. Women are no longer the stay-at-home mothers of the 1950s sitcom “The Donna Reed Show” or even the popular 1970s sitcom “The Brady Bunch.” Today, women are more like Clair Huxtable of “The Cosby Show”—college-educated with professional jobs and sharing in the family’s financial decision-making.

“Our families don’t look like the ‘60s anymore,” says Susan W. Sweetser, who heads the Women’s Markets department at MassMutual Financial Group, a Fortune 100 company. “Women really are the drivers in their households.”

According to the latest data from the Bureau of Labor Statistics, nearly 60 percent of women are in the labor force today compared with only 43 percent in 1970. In fact, half of all management and professional positions are held by women, and they make up 38 percent of all entrepreneurs.

But women are still more likely than men to live in poverty despite women’s advancement in the labor force and their growing financial power. Black and Hispanic women are twice as likely to live in poverty as their White counterparts. Why? Read the full story

The person who wants to be rich saves a lot from an early age, chooses a mix of investments that suits his or her age, lifestyle and attitude to risk and lets time and compound interest work its magic. There are steps you can take to make sure that you are maximizing and protecting your gains at the same time. Without these steps, you are destined to experience the gain-loss cycle, which in the end, is like spinning your wheels in the mud.

1 – Planning for the Long Haul

You are responsible for where you are in your life. Where you are today is determined by the choices you made in the past. So if you want to be better off in ten, twenty or thirty years, start planning now. All successful people have a clear vision of what they are working towards. People who don’t, just bumble along.

If you are just starting out, put off getting married until you become financially independent, with little or no debt, and have your investments in place. Study and admire successful people and try to emulate them. And if your parents aren’t successful, don’t do what they did.

2 – Pick the Right Job and Career

Obviously, the more you earn the more you can salt away. When considering where you want to work, look at what the top executive makes to get an idea of your earnings potential with that employer. Investigate and understand how your employment circumstances affect your wealth building strategy. Identify your biggest expense and manage it without having to make more money.

Remember, these days you are not limited to making a living by your physical labor. The only limit you have on yourself now is your own imagination – your ideas are the most valuable thing you possess. Finally, pick a profession you love and you’ll never have to work a day in your life.

3 – Change the Way You Think About Money

Realize that more money is not going to solve your problems. The problem isn’t the size of your checkbook, it is the way you were taught to use money. The gap between the rich and poor is getting wider because the rich understand money and how to use it.

Think of money as a seed; learn how to plant it to produce the best harvest. When you do this, you will rule your finances, not the other way around. Each dollar you save is a dollar working for you, not you working for the dollar. Over the course of time, the goal is to make your money work hard and make more money for you.

4 – Debt Equals Bondage

Debt is very expensive. Every dollar spent paying interest on your debt is money lost. The average investment earns about 13 percent over time, that’s also just about what you pay out in debt interest! Pay off your debts as fast as you can – aim to increase your monthly payments by 10%. Start with your smallest debt. Once that debt is paid off you can turn the payments you were making toward a larger debt, sometimes doubling the rate at which you are able to pay off that bigger debt.

Living above your means – on the bank’s money – is foolish and is likely to set you firmly on the road to financial ruin. Pay cash whenever possible and use debt very sparingly.

5 – Make a Budget and Stick to It

Today you should sit down and find the monthly expenses that truly don’t mean as much to you as building wealth does. See how you can eliminate some of your spending to pay off your debt or put in savings in order to maximize your cash flow faster. Wealth building actually begins with debt reduction and strict management.

6 – Get into the Habit of Saving

The biggest single potential influence on wealth is what economists call the propensity to save. Obviously if you spend everything you earn, you build no wealth. But with the magic of time and compound interest, you increase your potential to become wealthy.

Many people suffer from the “not enough” mentality; namely that if they aren’t putting away large sums of money, they will never get rich. Develop a habit of saving, and steering clear of debt; that’s all it takes to set you on the road to becoming a millionaire. Ideally, you should be saving 15% to 20% of your monthly income, and this percentage should increase, as you get older.

Become disciplined in your saving; save on a regular schedule. One of the least painful methods of regular saving is to authorize a monthly bank debit into a high-growth money-market account or growth fund.

7 – Think Before You Spend

Develop an understanding of the power of small amounts. Try this idea –– save all the receipts you get for everything you buy in a month, from dinners out right down to that latté you bought this morning. Figure what you can do without and put that money into a savings account.

Making more money doesn’t make a difference. Most people think an increase in income means they can spend more. Drawing up a monthly budget and sticking to it is a great deterrent against falling into the trap of willy-nilly spending. Remember, with each dollar you save, you are buying yourself freedom. When you think about it like that, you see how spending $20 here and $40 there can make a huge difference. Since money has the ability to work in your place, the more of it you employ, the faster and larger it will grow.

8 – Invest Wisely

A survey of America’s affluent (those who make over $225,000 a year or own $3,000,000 in assets) revealed that 27-30% of all the income the wealthy earned went into investments and savings. That isn’t a result of being rich––that is why they are rich.

True wisdom in investing is a difficult subject, since investment wisdom is obvious mostly in hindsight. Some people invest in a single activity they know well. Often this is a recipe for financial success, since deep knowledge and strong focus work pretty well. Just make sure the investment is in something that actually makes money. The standard approach to investing is to have a variety of investments like cash, bonds, equities and real estate with a wide geographic dispersion. This is because different types of investments do well and badly at different times.

When choosing an adviser, be very careful to check credentials and to establish the basis on which the adviser is being paid. There is no reason to pay up-front fees (loads) on investments. The better advisers will charge an explicit fee and reveal any other basis of remuneration.

Even a small amount of money, wisely invested, can produce astonishing returns over time, but don’t be foolish and fall for a get-rich-quick scheme – they never work.

9 – Give Yourself a Tax Break

Aim to lower your taxable income and hence pay less tax. There are a few perks and plans that the taxman has not yet snuffed out. A qualified tax consultant can help you here.

You stand a better chance of achieving millionaire status from running your own business than by earning a salary. The business owner gets more tax breaks and reaps the income from hard work, but the greatest reward usually comes when the business is sold. If you aren’t keen to run your own business, there is another route to wealth: exercising the stock options given to you by your employer.

10 – Keep Things in Perspective and Enjoy Life

When you understand that any power money has over you is derived from your relationship with it, you suddenly become free from the constant pressures and stress of thinking about it. Once you have made the choice to take control back of your life by building up your net worth, don’t give a second thought to the “what ifs.”

Have fun. Earn a lot, save a lot, spread your risks and don’t try to be too clever at picking individual investments or changes in market sentiment. The rules so far may seem rather old-fashioned, even boring. But it’s okay to take a small portion and invest in something fun or have an occasional small indulgence. Just don’t go overboard; those little luxuries add up.

June Stewart learned about money at a very early age. Her mother was disciplined about money and taught Stewart the financial basics. Stewart got her first job in her teens and a checkbook shortly thereafter. She became a contributor to her household and shared what she earned. “My parents didn’t go to college, but my mother invested in stocks and watched her stocks grow,” Stewart says. “I feel like I got a strong foundation. I understood the whole framework around finances, investing and managing money, giving back and being a wise steward.”

Today, the 41-year-old human resources specialist Columbus, Ohio is passing on her mother’s values to her 5-year-old daughter. “When I found out I was pregnant, I called my financial guy to find out how much it would cost to pay for my daughter to go to school,” Stewart says. “She got her payout before she even got here.” Read the full story

Has the process of meeting your financial goals changed at all in the past seven years? Well, yes… and no.

It’s something we all dream of; choosing the right investments and making enough to take care of us the rest of our lives. But is it really possible in today’s economic climate? The majority of experts seem to feel it is, provided it’s done properly.

There are a couple of schools of thought on investing. Some investment groups, such as Oxford Club’s Investment U, stress developing a strategy for the long-term. Instead of wondering where the market or economy are going to go, ask yourself how to get the highest return via the least risk, how to guarantee your portfolio will continue to increase in value, and how to protect your profits as well as the principal.

The Four Pillars

Investment U calls the strategy the Four Pillars of Wealth. The basic premise is that to invest successfully, there will always be a degree of uncertainty. Makings predictions on the market can be right, or wrong, and nobody gets it right all the time. The critical solution to guesswork is what it terms asset allocation. It differs from basic diversification in that it involves distributing investments not only in various market sectors or securities, but also in different asset classes. One example is high-grade bonds, which have actually increased when the market in general has fallen. Others include real estate investment trusts (REITs), high-yield investments, inflation-adjusted treasuries and precious metals. Since different asset levels move in different directions, you can increase returns while keeping the overall volatility of your portfolio to a minimum. To learn about the basics, it’s recommended reading a book such as The Intelligent Asset Allocator, by William Bernstein.

The second pillar is knowing when to sell. Some investment services, such as Investment U, have a built-in point to do this that guarantees the protection of profits and principal. Here’s how it describes it: “We start all of our trading positions with a recommendation that you place a sell stop 25% below your execution price. As the stock rises, we raise the trailing stop. In other words, if you buy a stock at $20, your stop loss is at $15. When the stock hits $32, your stop loss (still trailing at 25%) will be at $24. As long as the stock keeps trending up, we’re happy to hang on. If the stock pulls back 25% from it’s closing high, we sell, no questions asked.”

Another element of this is that while common sense dictates that one should cut losses early on should things begin to slip, few investors actually pull the trigger. The trailing stop strategy eliminates any uncertainty. Allowing portfolios to continue to grow without taking profits is risky at best. By not selling, an investor is opening themselves up to the chance of the profits not only decreasing or even disappearing, by actually turning into losses.  Not having a sell discipline in place is investing by the seat of one’s pants, so to speak.  A trailing stop is necessary, but so is the resolve to stick to it.

How Much Is Enough?

The third pillar is how much to invest in a specific stock. Obviously, this is affected by one’s net worth, basic investment experience and risk tolerance.

Investment U recommends 3% of one’s equity portfolio – less if you wish to be conservative, a bit more if you feel aggressive. But never more than you can really afford to gamble with. In short, it doesn’t pay to be so confident in a particular stock or market that you put too much into it. While it’s true some people have made fortunes this way, that’s almost always the exception rather than the rule. To maximize profit potential, spread the risk around.

In addition, never make taxes a key priority in assembling and maintaining an investment portfolio. Don’t refuse to diversify because you steadfastly believe you can’t afford the tax hit. When you consider the alternative should a stock nosedive (Enron or United Airlines, for example), the tax suddenly becomes eminently preferable.

The final pillar ties into the above point; you can avoid higher taxes by slimming initial investment expenses. According to a study done by the Vanguard Group of mutual funds, average investors relinquish 2.4% of their annual returns to taxes, more if they trade often. One example: In Oxford’s case, it chose not to buy, the Pimco Total Return Fund, the largest and best-performing bond fund in the country. Rather, it recommended the Manager’s Fremont Bond Fund, a no-load fund, which didn’t involve the typically high fees associated with Pimco. Similarly, Oxford went with the Templeton Emerging Markets Fund, which is closed-end, instead of the Templeton Developing Markets Fund, which has a 5.75% front-end load, while the Emerging Markets fund has none, and sells at an 11% discount to its net asset value. Both funds are run by the same manager, and invest exclusively in emerging markets.

Put more simply; try to avoid all investments with a front-/back-end load, surrender penalties or 12b-1 fees. Get recommendations for deep-discount brokers and keep all portfolio expenses to a minimum.

Another way to help keep the IRS at bay is to manage your portfolio in a manner that leaves nothing for it to take. This can be accomplished by sticking to higher-quality investments, which have fewer turnovers, and hence less capital gains taxes. The less you trade your core portfolio, the less tax liabilities you incur. Further, stick with investments for at least a year. Whatever you sell in less than 12 months is a short-term capital gain, taxed at the same level, as earned income. Long-term gains are taxed at a maximum rate of 20%. And any short-term trading done in your IRA is tax-exempt.

If you stop out in under a year, offset the capital gains with capital losses. The IRS permits offsetting all realized capital gains by selling any stocks that have been lemons. You can take up to $3,000 in losses against earned income.

Other tips include avoiding actively managed funds in non-retirement accounts. Managed funds usually have high turnover and Federal law requires them to distribute at least 98% of realized capital gains each year. Put high-yield investments such as bonds, utilities and real estate investment trusts in your IRA, pension, 401K or other tax-deferred account. There’s no provision in the tax code to offset your dividends and interest. If you’re in the upper tax brackets, choose tax-free instead of taxable bonds. An example: A cost-efficient, taxed-managed $100,000 portfolio can be worth $419,000 more in 20 years, and those figures don’t factor in any positive investment performance.

Other Viewpoints

Investment U’s strategy is one angle. Others suggest a more conservative approach in today’s economy where a financial safety net is critical. “Long-term investments like 401Ks and savings accounts are the best way to go,” says Delores Sims, president/CEO of Legacy Bank. Unless you have an investment broker who really understands the stock market, you can lose a lot. Sticking with companies such as utilities, something safe.”

Her suggestion is to seek out an investment club, or, if none exists, start one. This way, you and your peers can study investment to learn as much as possible about the market. Investment seminars can help as well.

As far as how much to invest, Sims notes, “You should have enough in your savings account to cover three to six months of your lifestyle should anything happen. You should do nothing to change your life dramatically, but add up your fixed and variable expenses. But at the same time, you really have to sacrifice to invest, because you’re building a future for yourself and your family at the bottom line. You need to perhaps let some material things go, but you still need cash in the bank as a safeguard. It’s very difficult passing money from one generation to the next. If you don’t save, you simply cannot do it.”

In the same vein, Matthew Yale, vice president of public affairs of Ariel Mutual Funds, also says one needs to take a steady as opposed to a complicated course. “Since 1929, there’s no investment stronger than the US Stock Market in general,” he says. “But real wealth is created over the long term. Investing takes discipline and patience.”

His answer? Mutual funds. “They’re the best way to diversify, and you can do so on a minimum monthly investment,” he notes, “If you ask a professional money manager, they’ll say the same. To simply play the market with various stocks is very high-risk.”

He also doesn’t believe in making a large stake. “How much you invest isn’t as important as doing it consistently,” he explains. “Each month, you should put part of your paycheck toward investing, and you’ll build up a portfolio. One of the best benefits of mutual funds is that you don’t have to worry about the best time to buy or sell. The mutual funds manager will simply do it, after advising you why. You can simply invest at will into anything.”

Does he see any downside to mutual funds? “In all honesty, no. Even for experienced investors, they still represent the best diversification available.”

In the final analysis, building equity via investment all comes down to knowing what you’re doing. But one has to do their homework diligently first. It sounds simplistic, but with the proper knowledge and advice, it can become fairly uncomplicated.

Arn Bernstein is a freelance writer based in Philadelphia.