Portfolio builder's first steps

Q: I am a 37-year-old faculty member making a minor salary at a major university. I have no debt. I own my car, have no school loans, and pay only rent, insurance, and living costs. I have a solid foundation of cash in the bank, but I want to start making my money work for me. I'm not sure where to start, as I have never ventured into the market. I tend to be conservative financially, but consider this to be an important step in building my finances on a modest salary. How do I start this process to build my confidence and capital?
M.S., via e-mail

A: First off, your savings and low amount of debt have indeed given you a solid foundation, says David Powell, a certified financial planner in Raleigh, N.C. Your next move, he says, should be to broaden that base. To get started, he suggests these two steps:

• Make sure your cash reserves equal three to six months of your expenses. Don't expect to make any money with your liquid reserve. Your goal is to protect what you have. Something will come along - a house, a spouse - to soak up this money. In fact, with mortgage interest rates this low, you might consider house shopping now if you can see yourself staying in the area for more than five years.

• Build your retirement fund. Work with a professional, or a good Web-based calculator (Mr. Powell recommends something called the "retirement success planner" at Americanexpress.com) to estimate how much money you'll need for retirement.

Once you have targeted an amount you need to save, look at investment options. Your employer probably offers a tax-deferred payroll retirement plan such as a 403(b) plan that will let you invest in a number of mutual funds.

Though you're conservative with your dollars, Powell says you can now afford to shoulder some extra risk - in hopes of earnings extra profits - because your retirement is at least 25 years off.

A good approach here is to consider a "lifestyle" type of mutual fund investment that would allocate your money across different investment categories - also taking into account your age and investing horizon - to give you diversification and reduce the risk of loss. :

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