Five Basics for Building a Solid Financial Future

The stark truth about managing our money these days is that we are mostly on our own.

Few employers want us around for 40 years, so our income is likely to have ups and downs and disappear altogether for brief periods between jobs. Saving for retirement is now mostly our responsibility, too. Health insurance, for those of us who have it and manage to keep it, requires increasingly large amounts of money out of our pockets. The list goes on and on.

At the same time, all sorts of individuals and institutions have smelled opportunity and lined up to peddle their wares, resulting in an explosion of credit cards, bank products and advisers of various stripes. Some of this is helpful because competition has led to lower costs. But in other instances — say, newfangled adjustable-rate mortgages — the result has been painful.

Complicating all of this is the housing downturn, which has affected the largest asset in many portfolios. Rising fuel and food prices along with tougher loan standards do not help.

Given the stakes, it is hard to avoid the persistent low-grade fear that we have made wrong choices or cannot find the right ones, even though they are out there somewhere.

“There’s no guarantee that the choices will be available, attractive or appropriate for everyone,” said Jacob S. Hacker, a political science professor at Yale University and author of “The Great Risk Shift,” which looked at how corporations and governments have pushed financial responsibility onto individuals.

So as I take on the Your Money column (and later this year, a companion personal finance site at nytimes.com), I want to devote some space to treating the subject in much the same way that this newspaper’s critics treat new films or restaurants. Important new offerings — whether mutual funds or a shopping search engine — will merit a review. And one by one, we will figure out what is worth using and what is best to ignore.

Until then, here are five basic guidelines. Think of them as the first principles of Your Money, guidance that can be useful in making just about any financial decision.

INVESTING IS SIMPLE The author Michael Pollan offered an elegant seven-word mantra in his best-selling book “In Defense of Food” that provides clarity amid the bounty of choices on supermarket shelves: “Eat food. Not too much. Mostly plants.”

Boiling down investing is a similar exercise: Index (mostly). Save a ton. Reallocate infrequently.

For most of us, investing in index mutual funds and similar vehicles — and sticking with them — is the hardest part of the mantra to accept. There are about 7,500 stocks on the three major exchanges in the United States and roughly 8,000 mutual funds. It would seem that with such an array of choices, we should be able to create portfolios that can outperform the market averages.

The fact is, however, besting the overall market in most investment classes is nearly impossible over long periods of time. Sure, it may be fun to try. But if you enjoy that sort of thing, do it with a tiny piece of your portfolio. And remember to call it what it actually is: gambling.

The rest of us should save as much as we can in a collection of low-cost index funds. Divide the money among stocks, bonds and other investments according to your time horizon and risk tolerance. Then adjust that allocation occasionally. Opinions vary on the frequency, but most experts agree that adjusting the mix more often than every 6 to 12 months is unnecessary and possibly costly.

IT STILL MAY BE WORTH PAYING FOR HELP Investing, however, is only one small part of your financial life. Mortgages, taxes, college savings, insurance and debt are a few of the hugely important tasks we have to figure out.

Perhaps the best thing a versatile professional — whether it is a financial planner, accountant, stockbroker or lawyer — does is provide discipline. It is difficult to get most of this stuff right. And to get it done at the right time. Professionals help make sure it all happens on schedule.

Most of us would rather avoid paying for help. Many financial planners charge 1 percent of a client’s assets annually for advice on anything and everything, including investing. So if you have $200,000 saved for retirement, that is $2,000 a year.

The best defense I have ever heard for this level of compensation comes from Roger Streit, a financial planner at Key Financial Solutions in Roseland, N.J. He says that only 1 percent of us are wise enough and regimented enough to manage our own financial affairs. The other 99 percent, meanwhile, could almost certainly improve their investment performance at least 1 percent, thus justifying the annual fee.

Sure, this sounds self-serving. But it is also probably true. For people without large portfolios or those who need help with something specific, planners affiliated with the Garrett Planning Network can help. All members are financial planners who agree to offer hourly rates.

CONTINUED : Make automation work for you

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