RETIREMENT

Once you've amassed two nickels to rub together, it's a good idea to keep them in separate pockets -- and not in the same pants.

Asset diversification is all about not putting your eggs in one basket. It's the ultimate protection should things go wrong in one investment class or sector, as is likely to be the case from time to time.

An individual's risk tolerance and goals for returns on his or her investments are dominant factors influencing what percentage of his or her investment dollar should be put into each of the three investment categories, and the specific types of issues that should be bought in each category. Making these choices wisely delivers the maximum return within each investor's comfort zone for risk, enabling him or her to reach realistic financial goals without losing sleep.

The ultimate financial goal, of course, is retirement. How  soon you retire -- and in what style -- can be greatly affected by your decisions on asset allocation earlier in life. In accounting for risk in your asset allocation, it's more productive to think in terms of your tolerance for volatility.

1. Identify and write down your financial goals, whether they are saving to send your kids to college, buying a new car, saving for a down payment on a house, going on vacation, paying off credit card debt, or planning for retirement.
2. Break each financial goal down into several short-term (less than 1 year), medium-term (1 to 3 years) and long-term (5 years or more) goals.
3. Educate yourself! Read Money magazine, or a book about investing, or surf the Internet's investing web sites. The stock market is not voodoo. With a little effort you can learn enough to make educated decisions that will increase your net worth many times over. Then identify small, measurable steps you can take to achieve these goals, and put this action plan to work.
4. Evaluate your progress.  Review your progress monthly, quarterly, or at any other interval you feel comfortable with, but at least  semi-annually, to determine if your program is working. If you're not making satisfactory progress on a particular goal, re-evaluate your approach and make changes as necessary.