Where to Invest My Money

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So you're wondering where to invest the greenbacks in your piggy bank. Don't wait another minute--the earlier you put your money to work, the more money you will make. Where you invest will depend on how much money you have, how much risk you can bear, how much liquidity you need, what kind of returns you expect and what your investment horizon is.

Equity

  • Whether you're in your 20s, 40s or 60s, your portfolio must include emerging sectors (nanotechnology, biotech, fuel cells) and mature sectors (manufacturing, pharmaceutical, energy, retail, consumer durables). Pick up a smattering of index company shares (General Electric Co., Intel, Cisco, Pfizer, Kraft Foods) and shares of midcap and small cap firms. If your capital is small, say $1,500, invest in exchange traded funds (ETF) such as those offered by Dow Jones or S&P to obtain tax benefits. Mutual funds are solid, time-trusted investment vehicles. Forbes"magazine lists Bruce Fund No. 1 in its "Honor Roll" for 2009. Next in line is Meridian Value, which selects undervalued firms with growth potential. Pick funds that include stocks in high-growth sectors in emerging economies.

Bonds

  • Long-term inflation indexed zero coupon bonds should be a part of your tax-deferred retirement account at any age, or if you need to put kids through college 10 years from now. Say you are about 15 years away from retirement, around 40 percent of your portfolio must consist of bonds. If you can tolerate more risk, increase your equity exposure. Fixed income investors must include both high-yield corporate bonds and short-term U.S. Treasury bonds to maximize yields and lower risk.

Foreign Currency

  • Hold part of your portfolio in nondollar assets such as foreign currencies by investing in a currency ETF. Be prepared to book losses if foreign currencies depreciate against the U.S. dollar. To spread risk, invest in a combination of currencies that are less interconnected macroeconomically.

Diversification

  • Never put all your eggs in one basket. As cliched as it sounds, it's absolutely true. Diversify across asset classes and also within each asset class to spread risk.The younger you are, the more risk you can bear. In your 20s, roughly 75 percent of your portfolio should consist of stocks and the rest, bonds. In your 40s, roughly 60 percent of your exposure should be in stocks, and in your late 60, around 30 percent of your portfolio must be in stocks. Regardless of where and when you invest, diversify across verticals and within an industry.

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