Carrie Schwab Pomerantz
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Dear Carrie: I'm 27 and finally in a situation where I can save some money. Last year, I was even able to put $5,000 in a Roth IRA. But now what? Everyone tells me to start investing, but I have to confess I'm kind of scared. I think what's been happening in the last few years has really shaken me up. How can I invest and not lose money? --A Reader

Dear Reader: First, major kudos for getting an early start on retirement saving. By starting in your twenties, you give yourself a huge advantage; in fact, if you continue to save just ten percent of your salary each year, you should be in pretty good shape come retirement time. But the people urging you to invest are absolutely right. Saving is only half the story. (set ital) Growing (end ital) your money is the real key to setting yourself up for the future.

Looking at your age alone, the standard advice would be to put the majority of your savings in stocks. However, given the market ups and downs you've seen, I completely understand your reluctance to jump in. Let's try to put some things in perspective.

YOU HAVE TO ACCEPT SOME RISK

There's no way around it: when you invest, the risk of loss goes hand in hand with the potential for gain. And while stocks have a greater potential for gain than bonds or cash over the long term, they also are the most volatile. So before you make any decisions, I recommend that you take some time to think carefully about how much risk you're willing to take. Are you willing to accept a loss in one year knowing that you also have the potential for gain in the future? Also realize that at your age, you do have the time to ride out the market's downs more than say a 40- or 50-year-old would.

YOU NEED A PLAN YOU CAN STICK WITH

That said, if you're really not comfortable taking on much investment risk, go with it. When you invest against your feelings, you'll be tempted to bail the first time the market goes through a rough spot. So it's important to come up with an investment approach you can stick with over time.

What might this mean for you? A conservative portfolio might have 20 or 25 percent in stocks and the rest divided into fixed income investments, such as bonds or certificate of deposits and cash. In my opinion, that would be extremely conservative for someone of your age, but it may be appropriate for you -- at least as a starting point. A more moderate approach might be along the lines of 60 percent in stocks divided among large, small and international companies.

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Carrie Schwab Pomerantz

Carrie Schwab Pomerantz is a Motley Fool contributor.

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