Set Goals and Adopt a Strategy

Investment goals tend to be long-term: enough to pay college tuition starting in ten years, for instance, or enough to retire on in 15 or 20 years. In fact, it's this long-range outlook that causes many people to set such vague, halfhearted goals that they fail to reach.

If you set merely "retirement" as a goal, what will motivate you to get there? Try going a few steps further: Where would you like to live when you retire? How much will it cost? What would you like to do? Travel? Sail the Caribbean? Play golf? How much income will you need in addition to your pension?

This kind of thinking lets you add some flesh to your bare-bones goal to "retire someday." You can set a goal like this: "Our goal is to retire at the age of 58 to a three-bedroom house near the Grand Canyon in Arizona, with room for the grandchildren who will come to visit. We want to spend at least two months of the year traveling in the U.S. and Europe, and we'll need $3,000 a month to supplement our pensions and Social Security." Now you've got some goals you can pin a price tag on and a nice mental picture to remind you of why you're pouring all that money into delayed gratification.

A strategy to reach your goals

Create your own strategy based on your own goals, risk tolerance, and psychological makeup. For example, three different investors might devise strategies like the following:

• Sticking with stocks. "Stocks offer the best returns over the long run. I have more than a decade to ride out any market dips, so I'm going to play the averages and put 90% of my money in the stock market. The rest I'll keep in savings, insured certificates of deposit, and money-market funds."

Rooted in real estate. "I think that rental real estate, despite its occasional setbacks, offers the best chance of long-term gain and steady income. I'll try to keep 40% of my assets in real estate and diversify the rest, putting some in the money market for liquidity and some in big-company stocks to balance the risks in real estate."

Spreading the risks. "I don't have a clue what's going on in the investment markets and I don't have the time to keep up, so I'll spread my money across a wide range of investments in the hope that gains in some categories will offset losses in others. I will invest 60% in stock-oriented mutual funds, 20% in corporate bonds, 10% in money-market funds and CDs, and 10% in shares of a real estate investment trust."

These are made-up scenarios, of course. Your own plan may look nothing like them, but you should go through the thought process so that investment decisions you make will be guided by your own strategy, not that of a broker or adviser trying to sell you something. A successful strategy can probably be summarized in three or four sentences, just like the ones above.

Monitor your investments

To make sure your investment plan is still on track, sit down once a year or so and update the values of what you own, including the equity in your home.

Compute each type of investment -- stocks, bonds, mutual funds, and so forth -- as a percentage of the total. If you haven't achieved an asset mix to your liking, this exercise will show you which parts have to be increased and which cut back. As the years go by, the percentage mix of your investments will change without you lifting a finger, as some parts of your portfolio rise in value and others fall. This makes a periodic review imperative. Money-management software, such as Microsoft Money or Quicken, makes it a snap.