Compound Wisdom

Boy, I wish I had known at 21 what I know today.

I certainly made a whopper of an investment error in my early days of adulthood. When I began investing for my retirement, I followed the advice of a co-worker and put all my 401(k) retirement money in bonds. "You can't trust the stock market," he told me.

Well, during the time I was in bonds, the stock market soared. The returns on my bond mutual funds were pitiful.

I made a classic novice mistake, getting my investment advice from an unqualified source. It didn't occur to me that my co-worker was basing his advice on his own situation. He was close to retiring and had an ultraconservative money style.

I eventually realized my mistake and reallocated my 401(k) money. Still, I could kick myself for the money I missed out on. But you live and learn, right?

Actually, the answer is yes and no.

Experience can certainly teach us a lot, but ask the right questions and go to the right source when you're young, and you can learn early.

I'm thrilled when I get questions from college students and recent graduates during my regular online discussions at http://www.washingtonpost.com/ . Here's a good one from a graduate: "I am trying to purchase a home in the next two years -- what would be a good place to start investing the money I have started saving?"

First, let me define investing. It means to commit money with the expectation of a financial gain. It also means you are putting your money at risk.

If you are saving for a home or you need that money for any other reason in the next five years or so, you do not want to invest this money.

As an investor, you want to give your money both time to grow and to weather the ups and downs of stocks and bonds, whether they are purchased individually or within a mutual fund.

So for short-term purposes, consider stashing your cash in a money market deposit account, a money market mutual fund or several certificates of deposit that mature over the next few years.