Top things to know

1. Saving for your own retirement is more important than saving for college.

Your children will have more sources of money for college than you will have for your golden years, so don't sacrifice your retirement savings.

2. The sooner you start saving, the better.

Even modest savings can pack a punch if you give them enough time to grow. Investing just $100 a month for 18 years will yield $48,000, assuming an 8% average annual return.

3. Stocks are best for your college savings portfolio.

With tuition costs rising faster than inflation, a portfolio tilted toward stocks is the best way to build enough savings in the long term. As your child approaches college age, you can shelter your returns by switching more money into bonds and cash.

4. You don't have to save the entire cost of four years of college.

Federal, state, and private grants and loans can bridge the gap between your savings and tuition bills, even if you think you make too much to qualify.

5. With mutual funds, investing for college is simple.

Investing in mutual funds puts a professional in charge of your savings so that you don't have to watch the markets daily.

6. 529 savings plans are a good way to save for college and they offer great tax breaks.

Qualified withdrawals are now free of federal tax and most plans let you save between $100,000 and $270,000 per beneficiary. Plus, there are no income limitations or age restrictions, which means you can start a 529 no matter how much you make or how old your beneficiary is.

7. Tax breaks are almost as good as grants.

You may be able to take two federal tax credits - the Hope Credit and Lifetime Learning Credit - in the years you pay tuition. Or, if your income is too high to qualify for those credits, you may qualify for a higher education expense deduction that will be in effect through 2009 and is extended periodically.

8. The approval process for college loans is more lenient than for other loans.

Late payments on your credit record aren't automatic grounds for refusal of a college loan.

9. Lenders can be flexible when it's time to repay.

There are still ways to cut costs after you graduate and begin repaying your student loans. For instance, there is often a one-quarter percentage point interest rate decrease if you set up automatic debit, in which monthly payments are automatically taken from your account.

10. Taxpayers with student loans get a tax break.

You may deduct the interest you pay up to $2,500 a year if your modified adjusted gross income is less than $65,000 if you're single or less than $130,000 if you're married filing jointly. The deduction can be taken for the life of the loan.

Top things to know

1. When it comes to teaching kids about money, the sooner the better.

Up until they start earning a living, and sometimes well beyond that, kids are apt to spend money like it grows on trees. This lesson will help you put your children on the road to handling money responsibly.

Long before most children can add or subtract, they become aware of the concept of money. Any 4-year-old knows where their parents get money - the ATM, of course. Understanding that parents must work for their money requires a more mature mind, and even then, the learning process has its wrinkles. For example, once he came to understand that his father worked for a living, a 5-year-old asked, "How was work today?" "Fine," the father replied. The child then asked, "Did you get the money?"

2. Once they learn how money works, children often display an instinctive conservatism.

Instant gratification aside, once they learn they can buy things they want with money - e.g., candy, toys - many children will begin hoarding every nickel they can get their hands on. How this urge is channeled can determine what kind of financial manager your child will be as an adult.

3. Seeds planted early bear fruit later.

It's important to work on your child's financial awareness early on, for once they're teenagers, they are less likely to heed your sage advice. Besides, they're busy doing other things - like spending money.

4. An allowance can be an effective teaching tool.

When your kids are young, giving them small amounts of money helps them prepare for the day when the numbers will get bigger.

5. Teenagers and college-age kids have bigger responsibilities.

Checking accounts, credit cards and debt are as elemental to the college experience as books and keg parties. Teaching high-schoolers about banking and credit will make them more savvy when they leave the nest.

6. Even investing should be learned early.

High schoolers can and should be taught about the market - using real money.

Top things to know

1. Save as much as you can as early as you can.

Though it's never too late to start, the sooner you begin saving, the more time your money has to grow. Gains each year build on the prior year's - that's the power of compounding, and the best way to accumulate wealth.

2. Set realistic goals.

Project your retirement expenses based on your needs, not rules of thumb. Be honest about how you want to live in retirement and how much it will cost. Then calculate how much you must save to supplement Social Security and other sources of retirement income.

3. A 401(k) is one of the easiest and best ways to save for retirement.

Contributing money to a 401(k) gives you an immediate tax deduction, tax-deferred growth on your savings, and - usually - a matching contribution from your company.

4. An IRA also can give your savings a tax-advantaged boost.

Like a 401(k), IRAs offer huge tax breaks. There are two types: a traditional IRA offers tax-deferred growth, meaning you pay taxes on your investment gains only when you make withdrawals, and, if you qualify, your contributions may be deductible; a Roth IRA, by contrast, doesn't allow for deductible contributions but offers tax-free growth, meaning you owe no tax when you make withdrawals.

5. Focus on your asset allocation more than on individual picks.

How you divide your portfolio between stocks and bonds will have a big impact on your long-term returns.

6. Stocks are best for long-term growth.

Stocks have the best chance of achieving high returns over long periods. A healthy dose will help ensure that your savings grows faster than inflation, increasing the purchasing power of your nest egg.

7. Don't move too heavily into bonds, even in retirement.

Many retirees stash most of their portfolio in bonds for the income. Unfortunately, over 10 to 15 years, inflation easily can erode the purchasing power of bonds' interest payments.

8. Making tax-efficient withdrawals can stretch the life of your nest egg.

Once you're retired, your assets can last several more years if you draw on money from taxable accounts first and let tax-advantaged accounts compound for as long as possible.

9. Working part-time in retirement can help in more ways than one.

Working keeps you socially engaged and reduces the amount of your nest egg you must withdraw annually once you retire.

10. There are other creative ways to get more mileage out of retirement assets.

For instance, you might consider relocating to an area with lower living expenses, or transforming the equity in your home into income by taking out a reverse mortgage.

Top things to know

1. Employee stock options are no longer reserved for the executive suite.

From cash-poor Silicon Valley startups to old-line manufacturing and service firms competing for top talent, more and more companies are offering stock options to the rank and file as well.

2. Stock options are still popular.

According to the National Center for Employee Ownership as many as 9 million employees participate in some 3,000 plans. In 1990, only 1 million U.S. employees had them.

3. Stock options can be expensive to exercise.

The lesson of the dot-com crash: Improperly exercising stock options can cause real financial headaches, particularly when it comes to paying taxes on your profits. Even if you keep the stock you purchased, you'll still have to pay taxes. But if you're careful not to overreach, options can be a lucrative benefit.

4. You'll see these common terms:

An employee stock option gives you the right to buy ("exercise") a certain number of shares of your employer's stock at a stated price (the "award," "strike," or "exercise" price) over a certain period of time (the "exercise" period).

5. There are two common types of plans:

Employee stock options come in two basic flavors: nonqualified stock options and qualified, or "incentive," stock options (ISOs). ISOs qualify for special tax treatment. For example, gains may be taxed at capital gains rates instead of higher, ordinary income rates. Incentive options go primarily to upper management, and employees usually get the nonqualified variety.

6. Nonqualified plans are special.

Unlike ISOs, nonqualified stock options can be granted at a discount to the stock's market value. They also are transferable to children and charity, provided your employer permits it.

7. There are three main ways to exercise options:

You can pay cash, swap employer stock you already own or borrow money from a stockbroker while simultaneously selling enough shares to cover your costs.

8. It's usually smart to hold options as long as you can.

Conventional wisdom holds that you should sit on your options until they are about to expire to allow the stock to appreciate and, therefore, maximize your gain. In the aftermath of the tech stock swoon, that logic may need some revision. In any event, you should not exercise options unless you have something better to do with the realized gain.

9. There may be compelling reasons to exercise early.

Among them: You have lost faith in your employer's prospects; you are overweighted on company stock and want to diversify for safety; you want to lock in a low-cost basis for nonqualified options; you want to avoid catapulting into a higher tax bracket by waiting.

10. Tax consequences can be tricky.

Unlike the case with nonqualified options, an ISO spread at exercise is considered a preference item for purposes of calculating the dreaded alternative minimum tax (AMT), increasing taxable income for AMT purposes.

Top things to know

1. Don't buy if you can't stay put.

If you can't commit to remaining in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner - even in a rising market. When prices are falling, it's an even worse proposition.

2. Start by shoring up your credit.

Since you most likely will need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover.

3. Aim for a home you can really afford.

The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary. But you'll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford.

4. If you can't put down the usual 20 percent, you may still qualify for a loan.

There are a variety of public and private lenders who, if you qualify, offer low-interest mortgages that require a down payment as small as 3 percent of the purchase price.

5. Buy in a district with good schools.

In most areas, this advice applies even if you don't have school-age children. Reason: When it comes time to sell, you'll learn that strong school districts are a top priority for many home buyers, thus helping to boost property values.

6. Get professional help.

Even though the Internet gives buyers unprecedented access to home listings, most new buyers (and many more experienced ones) are better off using a professional agent. Look for an exclusive buyer agent, if possible, who will have your interests at heart and can help you with strategies during the bidding process.

7. Choose carefully between points and rate.

When picking a mortgage, you usually have the option of paying additional points -- a portion of the interest that you pay at closing -- in exchange for a lower interest rate. If you stay in the house for a long time -- say three to five years or more -- it's usually a better deal to take the points. The lower interest rate will save you more in the long run.

8. Before house hunting, get pre-approved.

Getting pre-approved will you save yourself the grief of looking at houses you can't afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history.

9. Do your homework before bidding.

Your opening bid should be based on the sales trend of similar homes in the neighborhood. So before making it, consider sales of similar homes in the last three months. If homes have recently sold at 5 percent less than the asking price, you should make a bid that's about eight to 10 percent lower than what the seller is asking.

10. Hire a home inspector.

Sure, your lender will require a home appraisal anyway. But that's just the bank's way of determining whether the house is worth the price you've agreed to pay. Separately, you should hire your own home inspector, preferably an engineer with experience in doing home surveys in the area where you are buying. His or her job will be to point out potential problems that could require costly repairs down the road.

Top things to know

1. Americans are loaded with credit-card debt.

The average American household with at least one credit card has nearly $10,700 in credit-card debt, according to CardWeb.com, and the average interest rate runs in the mid- to high teens at any given time.

2. Some debt is good.

Borrowing for a home or college usually makes good sense. Just make sure you don't borrow more than you can afford to pay back, and shop around for the best rates.

3. Some debt is bad.

Don't use a credit card to pay for things you consume quickly, such as meals and vacations, if you can't afford to pay off your monthly bill in full in a month or two. There's no faster way to fall into debt. Instead, put aside some cash each month for these items so you can pay the bill in full. If there's something you really want, but it's expensive, save for it over a period of weeks or months before charging it so that you can pay the balance when it's due and avoid interest charges.

4. Get a handle on your spending.

Most people spend thousands of dollars without much thought to what they're buying. Write down everything you spend for a month, cut back on things you don't need, and start saving the money left over or use it to reduce your debt more quickly.

5. Pay off your highest-rate debts first.

The key to getting out of debt efficiently is first to pay down the balances of loans or credit cards that charge the most interest while paying at least the minimum due on all your other debt. Once the high-interest debt is paid down, tackle the next highest, and so on.

6. Don't fall into the minimum trap.

If you just pay the minimum due on credit-card bills, you'll barely cover the interest you owe, to say nothing of the principal. It will take you years to pay off your balance, and potentially you'll end up spending thousands of dollars more than the original amount you charged.

7. Watch where you borrow.

It may be convenient to borrow against your home or your 401(k) to pay off debt, but it can be dangerous. You could lose your home or fall short of your investing goals at retirement.

8. Expect the unexpected.

Build a cash cushion worth three months to six months of living expenses in case of an emergency. If you don't have an emergency fund, a broken furnace or damaged car can seriously upset your finances.

9. Don't be so quick to pay down your mortgage.

Don't pour all your cash into paying off a mortgage if you have other debt. Mortgages tend to have lower interest rates than other debt, and you may deduct the interest you pay on the first $1 million of a mortgage loan. (If your mortgage has a high rate and you want to lower your monthly payments, consider refinancing.)

10. Get help as soon as you need it.

If you have more debt than you can manage, get help before your debt breaks your back. There are reputable debt counseling agencies that may be able to consolidate your debt and assist you in better managing your finances. But there are also a lot of disreputable agencies out there.

Top things to know

1. Bonds are fancy IOUs

Companies and governments issue bonds to fund their day-to-day operations or to finance specific projects. When you buy a bond, you are loaning your money for a certain period of time to the issuer, be it General Electric or Uncle Sam. In return, bond holders get back the loan amount plus interest payments.

2. Stocks do not always outperform bonds.

It is only in the post-World War II era that stocks so widely outpaced bonds in the total-return derby. Stock and bond returns were about even from about 1870 to 1940. And, of course, bonds were well in front in 2000, 2001 and 2002 before stocks once again took charge in 2003 and 2004. By 2008, however, the bond market had far outpaced the stock market once again.

3. You can lose money in bonds.

Bonds are not turbo-charged CDs. Though their life span and interest payments are fixed -- thus the term "fixed-income" investments -- their returns are not.

4. Bond prices move in the opposite direction of interest rates.

When interest rates fall, bond prices rise, and vice versa. If you hold a bond to maturity, price fluctuations don't matter. You will get back the original face value of the bond, along with all the interest you expect.

5. A bond and a bond mutual fund are totally different animals.

With a bond, you always get your interest and principal at maturity, assuming the issuer doesn't go belly up. With a bond fund, your return is uncertain because the fund's value fluctuates.

6. Don't invest all your retirement money in bonds.

Inflation erodes the value of bonds' fixed interest payments. Stock returns, by contrast, stand a better chance of outpacing inflation. Despite the drubbing stocks sometimes take, young and middle-aged people should put a large chunk of their money in stocks. Even retirees should own some stocks, given that people are living longer than they used to.

7. Consider tax-free bonds.

Tax-exempt municipal bonds yield less than taxable bonds, but they can still be the better choice for taxable accounts. That's because tax-frees sometimes net you more income than you'd get from taxable bonds after taxes, provided you're in the 28 percent federal tax bracket or higher.

8. Pay attention to total return, not just yield.

Returns are a slippery matter in the bond world. A broker may sell you a bond that is paying a "coupon" - or interest rate - of 6 percent. If interest rates rise, however, and the price of the bond falls by, say, 2 percent, its total return for the first year - 6 percent in income less a 2 percent capital loss - would be only 4 percent.

9. If you want capital gains, go long.

When interest rates are high, gamblers who want to bet that they'll head lower should buy long-term bonds or bond funds, especially "zeros." Reason: when rates fall, longer-term bonds gain more in price than shorter-term bonds. So you win big - scoring a large potential capital gain in addition to whatever interest the bond may be paying. If rates rise, on the other hand, you lose big, too.

10. If you want steady income, stick with short to medium terms.

Investors looking for income should invest in a laddered portfolio of short- and intermediate-term bonds. For more on laddered portfolios, see our "Sizing up risks."

Top things to know

1. Over the long term, stocks have historically outperformed all other investments.

From 1926 to 2008, the S&P 500 returned an average annual 9.6 percent gain. The next best performing asset class is bonds. Long-term U.S. Treasury notes returned, on average, 5.9 percent over the same period.

2. Over the short term, stocks can be hazardous to your financial health.

On Oct. 19, 1987, stocks experienced the worst one-day drop in stock market history - 22.6 percent. More recently, the shocks have been prolonged and painful: If you had invested in a Nasdaq index fund around the time of the market's peak in March 2000 you would have lost three-fourths of your money over the next three years. And in 2008, stocks overall lost a whopping 37 percent.

3. Risky investments generally pay more than safe ones (except when they fail).

Investors demand a higher rate of return for taking greater risks. That's one reason that stocks, which are perceived as riskier than bonds, tend to return more. It also explains why long-term bonds pay more than short-term bonds. The longer investors have to wait for their final payoff on the bond, the greater the chance that something will intervene to erode the investment's value.

4. The biggest single determiner of stock prices is earnings.

Over the short term, stock prices fluctuate based on everything from interest rates to investor sentiment to the weather. But over the long term, what matters are earnings.

5. A bad year for bonds looks like a day at the beach for stocks.

In 1994, the worst year for bonds in recent history, intermediate-term Treasury securities fell just 1.8 percent, and the following year they bounced back 14.4 percent. By comparison, in the 1973-74 crash, the Dow Jones industrial average fell 44 percent. It didn't return to its old highs for more than three years or push significantly above the old highs for more than 10 years.

6. Rising interest rates are bad for bonds.

When interest rates go up, bond prices fall. Why? Because bond buyers won't pay as much for an existing bond with a fixed interest rate of, say, 5 percent because they know that the fixed interest on a new bond will pay more because rates in general have gone up.

Conversely, when interest rates fall, bond prices go up in lockstep fashion. And the effect is strongest on bonds with the longest term, or time, to maturity. That is, long-term bonds get hit harder than short-term bonds when rates climb, and gain the most when rates fall.

7. Inflation may be the biggest threat to your long-term investments.

While a stock market crash can knock the stuffing out of your stock investments, so far - knock wood - the market has always bounced back and eventually gone on to new heights. However, inflation, which has historically stripped 3.2 percent a year off the value of your money, rarely gives back what it takes away. That's why it's important to put your retirement investments where they'll earn the highest long-term returns.

8. U.S. Treasury bonds are as close to a sure thing as an investor can get.

The conventional wisdom is that the U.S. government is unlikely ever to default on its bonds - partly because the American economy has historically been fairly strong and partly because the government can always print more money to pay them off if need be. As a result, the interest rate of Treasurys is considered a risk-free rate, and the yield of every other kind of fixed-income investment is higher in proportion to how much riskier that investment is perceived to be. Of course, your return on Treasurys will suffer if interest rates rise, just like all other kinds of bonds.

9. A diversified portfolio is less risky than a portfolio that is concentrated in one or a few investments.

Diversifying - that is, spreading your money among a number of different types of investments - lessens your risk because even if some of your holdings go down, others may go up (or at least not go down as much). On the flip side, a diversified portfolio is unlikely to outperform the market by a big margin for exactly the same reason.

10. Index mutual funds often outperform actively managed funds.

In an index fund, the manager sets up his portfolio to mirror a market index - such as Standard & Poor's 500-stock index - rather than actively picking which stocks to purchase. It is surprising, but true, that index funds often beat the majority of competitors among actively managed funds. One reason: Few actively managed funds can consistently outperform the market by enough to cover the cost of their generally higher expenses.

Top things to know

1. Budgets are a necessary evil.

They're the only practical way to get a grip on your spending - and to make sure your money is being used the way you want it to be used.

2. Creating a budget generally requires three steps.

- Identify how you're spending money now.

- Evaluate your current spending and set goals that take into account your long-term financial objectives.

- Track your spending to make sure it stays within those guidelines.

3. Use software to save grief.

If you use a personal-finance program such as Quicken or Microsoft Money, the built-in budget-making tools can create your budget for you.

4. Don't drive yourself nuts.

One drawback of monitoring your spending by computer is that it encourages overzealous attention to detail. Once you determine which categories of spending can and should be cut (or expanded), concentrate on those categories and worry less about other aspects of your spending.

5. Watch out for cash leakage.

If withdrawals from the ATM machine evaporate from your pocket without apparent explanation, it's time to keep better records. In general, if you find yourself returning to the ATM more than once a week or so, you need to examine where that cash is going.

6. Spending beyond your limits is dangerous.

But if you do, you've got plenty of company. Government figures show that many households with total income of $50,000 or less are spending more than they bring in. This doesn't make you an automatic candidate for bankruptcy - but it's definitely a sign you need to make some serious spending cuts.

7. Beware of luxuries dressed up as necessities.

If your income doesn't cover your costs, then some of your spending is probably for luxuries - even if you've been considering them to be filling a real need.

8. Tithe yourself.

Aim to spend no more than 90% of your income. That way, you'll have the other 10% left to save for your big-picture items.

9. Don't count on windfalls.

When projecting the amount of money you can live on, don't include dollars that you can't be sure you'll receive, such as year-end bonuses, tax refunds or investment gains.

10. Beware of spending creep.

As your annual income climbs from raises, promotions and smart investing, don't start spending for luxuries until you're sure that you're staying ahead of inflation. It's better to use those income increases as an excuse to save more.

Top things to know

1. Money in a bank account is safe.

A bank is one of the safest places to stash your cash. In an effort to shore up consumer confidence during the credit crunch of 2008, the federal government said it would temporarily insure accounts against loss by up to $250,000 per depositor. After Jan. 1, 2010, the standard insurance of up to $100,000 per depositor returns.

2. You pay for the convenience of a bank account.

Banks pay lower rates on interest-bearing accounts than brokerages and mutual fund companies that offer check-writing privileges. What's more, bank fees can be high - account costs can easily add up to $200 a year or more unless you keep a minimum required balance on deposit.

3. Inflation can eat what you earn from a bank.

Even at a low rate of inflation, the annual creep in the cost of goods and services usually outpaces what banks pay in interest-bearing accounts.

4. Not all interest rates are created equal.

Banks frequently use different methods to calculate interest. To compare how much money you'll earn from various accounts in a year, ask for each account's "annual percentage yield." Banks typically quote both interest rates and APYs, but only APYs are calculated the same way everywhere.

5. You can get better rates

Certificates of deposit (CDs) offer some of the best guaranteed rates on your money and are insured up to $250,000 each through the end of the year. As with all other deposits, insurance will return to the standard $100,000 in 2010.

The catch: you have to lock up your money for three months to five years or more. If interest rates fall before the CD expires, the bank is out of luck and must give you the rate it quoted. If rates climb, you're stuck with the lower rate.

Also with rising interest rates, money market accounts can become an attractive option, too. They pay more than banking accounts and you don't have to lock up your money for a specific amount of time.

6. ATM fees can take a significant bite out of your budget.

The convenience of using automated teller machines is an increasingly pricey one. On average, the fee your bank charges you to use another institution's ATM is $1.46, according to a Bankrate.com survey in fall 2008. That's on top of the average $1.97 that the other institution will charge you to use its ATM.

7. Getting the best deal takes work.

You won't get a great deal on a car if you just walk into a dealer and plunk your money down. Likewise, you won't get a great banking deal unless you comparison-shop and ask about price breaks. For example, a bank might offer free checking if you are a shareholder or if you direct deposit your paycheck.

8. Use the Internet to shop for bank services.

You can use the Internet to compare fees, yields, and minimum deposit requirements nationwide. Sites like Bankrate.com allow you to search and compare the highest yields and the lowest costs on banking, savings, loans and deposit rates nationwide. You can also search by geographic location or use CNNMoney.com loan center.

9. Banking online can make bill-paying easier.

Electronic bill-paying can save you the monthly hassle of paying your bills. And if you couple online banking with a personal-finance management program, such as Quicken or Microsoft Money, you'll be able to link your banking with your budgeting and financial planning as well. But be careful. Some vendors only warn the consumer of price hikes in the fine print of a bill.

10. You can bank without a bank.

A number of financial institutions offer accounts that resemble bank services. The most common: Credit union accounts; mutual fund company money market funds; and brokerage cash-management accounts.

Top things to know

1. Narrow your objectives.

You probably won't be able to achieve every financial goal you've ever dreamed of. So identify your goals clearly and why they matter to you, and decide which are most important. By concentrating your efforts, you have a better chance of achieving what matters most.

2. Focus first on the goals that matter.

To accomplish primary goals, you will often need to put desirable but less important ones on the back burner.

3. Be prepared for conflicts.

Even worthy goals often conflict with one another. When faced with such a conflict, you should ask yourself questions like: Will one of the conflicting goals benefit more people than the other? Which goal will cause the greater harm if it is deferred?

4. Put time on your side.

The most important ally you have in reaching your goals is time. Money stashed in interest-earning savings accounts or invested in stocks and bonds grows and compounds. The more time you have, the more chance you have of success. Your age is a big factor - younger people (who have more time to build their nest egg) can invest differently than older ones. Generally, younger people can take greater risks than older people, given their longer investment horizon.

5. Choose carefully.

In drawing up your list of goals, you should look for things that will help you feel financially secure, happy or fulfilled. Some of the items that wind up on such lists include building an emergency fund, getting out of debt and paying kids' tuitions. Once you have your list together, you need to rank the items in order of importance (if you have trouble doing so, use the CNNMoney.com Prioritizer for help).

6. Include family members.

If you have a spouse or significant other, make sure that person is part of the goal-setting process. Children, too, should have some say in goals that affect them.

7. Start now.

The longer you wait to identify and begin working toward your goals, the more difficulty you'll have reaching them. And the longer you wait, the longer you postpone the advantage of compounding your money.

8. Sweat the big stuff.

Once you have prioritized your list of goals, keep your spending on course. Whenever you make a large payment for anything, ask yourself: "Is this taking me nearer to my primary goals - or leading me further away from them?" If a big expense doesn't get you closer to your goals, try to defer or reduce it. If taking a grand cruise steals money from your kids' college fund, maybe you should settle for a weekend getaway.

9. Don't sweat the small stuff.

Although this lesson encourages you to focus on big-ticket, long-range plans, most of life is lived in the here-and-now and most of what you spend will continue to be for daily expenses - including many that are simply for fun. That's OK - so long as your long-range needs are taken into consideration.

10. Be prepared for change.

Your needs and desires will change as you age, so you should probably reexamine your priorities at least every five years.

Picking stocks for your portfolio

Adapted from Michael Sivy's "Sivy on Stocks" column, "Low-risk growth investing."

Although there are more than 6,000 publicly traded companies, the core of your stock portfolio should consist of financially strong companies with above-average earnings growth.

Surprisingly, there are only about 200 stocks that fit that description. A well-balanced stock portfolio should consist of 15 to 20 stocks, across seven or more different industries - but you don't have to buy them all at once.

Since you want to be able to hold your stocks for a long time, they should offer a total return higher than the 10 percent historical market average. You can estimate the likely return by adding the dividend yield to the projected earnings growth rate - a stock with 11 percent earnings growth and a 2 percent yield could provide a 13 percent annual total return.

As a general rule, stocks with moderately above-average growth rates and reasonable valuations are the best buys. Statistically, high-growth stocks are usually overpriced and have a harder time meeting inflated investor expectations.

The first thing to look at is the stock's price/earnings ratio compared with its projected total return. Ideally, the P/E should be less than double the projected return (a P/E of no more than 30 for a stock with 15 percent total return potential).

A well-balanced portfolio might include a couple of industrials with 9 percent growth rates and 3 percent yields, selling at 17 P/Es, as well as consumer growth stocks with 13 percent growth rates and 1 percent yields, at 23 P/Es. Add a couple of tech stocks with 25 percent growth rates and high P/Es (don't overdo it on those).

If you can average a 14 percent return over the next 10 to 20 years, you'll reach your financial goals - and probably outperform most pros as well.

How to buy stocks

When you're looking for a broker, you have three distinct choices. From the most to the least expensive, they are: full-service brokers, discount brokers and online brokers. What differentiates them is the advice they provide and cost.

Full-service brokers will call with stock ideas and back this advice with reports from their firm's research department. They'll keep an eye on your picks and let you know when they think changes are necessary.

Discounters do less of this. While there's typically plenty of research available on the best online brokerage sites, it's up to you to dig for it.

You may want to choose different kinds of brokers for different purposes. I believe that full-service brokers should get paid for their stock ideas. That seems only fair. But if you've done your research yourself, I don't see any reason to pay a hefty commission - discounters probably are fine.

The nice thing about the way the brokerage world is shaping up is that you may be able to have both of those things in one account at one firm.

Merrill Lynch and most other full-service brokers have come around to the fact that they need an online component - and need to charge you lower commissions when you use it. Discounters like Schwab and Fidelity have both started offering a fuller range of services in recent years, while retaining their low-cost structure.

If you decide to sign on with a full-service broker, you should make sure that person has nothing to hide. To get a report on any broker, call the National Association of Securities Dealers at 800-289-9999, or visit the broker's Web site.

Full-service brokers

Cost: Commissions are typically based on a percentage of your purchase (or sale) price.

Discount brokers

Cost: Between $10 and $20 for a trade of 1,000 shares or less, and on average, discounters charge one-third the price of full-service brokers.

Online brokers

Cost: At $9 to $15 a trade, it doesn't get any cheaper than this.

When trying to place a buy or sell order, you'll be faced with all sorts of questions: Market or limit order? "Day only" or "Good 'till cancelled." Here's the vocabulary you need to know to place a trade.

If you place a market order with your broker, then you are saying that you're willing to buy at whatever happens to be the prevailing price for the stock. If you have a specific price in mind, you can set a limit order specifying the price you're willing to pay. If the stock dips down to that level, your order will be automatically filled. Limit orders can be left open for a single day (a day order) or indefinitely (good until canceled).

After you've bought a stock, you can instruct your broker to sell it if the price drops to a level you specify (a stop loss order). That's a kind of insurance; it means that no matter what happens to a stock's price you'll never lose more than a specified amount.

In a volatile market, however, setting a stop-loss order at 10 percent or 20 percent below the purchase price will sometimes cause you to cash out of the stock on a momentary dip - thus locking in a loss even though the shares may immediately head back upward.

Different kinds of stocks

Not sure what a small cap is or why you should care? Read on.

There are thousands of stocks to choose from, so investors usually like to put stocks into different categories: size, style and sector.

By size

A company's size refers to its market capitalization, which is the current share price times the total number of shares outstanding. It's how much investors think the whole company is worth.

XYZ Corp., for example, may have 2 billion shares outstanding, and a stock price of $10. So the company's total market capitalization is $20 billion. (Technically, if you had an extra $20 billion lying around, you could buy each share of stock, and own the whole company.)

Is $20 billion a lot or a little? No official rules govern these distinctions, but below are some useful guidelines for assessing size.

Large-cap companies tend to be established and stable, but because of their size, they have lower growth potential than small caps.

Over the long run, small-cap stocks have tended to rise at a faster pace. It's much easier to expand revenues and earnings quickly when you start at, say, $10 million than $10 billion. When profitability rises, stock prices follow.

There is a trade-off, though. With less developed management structures, small caps are more likely to run into troubles as they grow - expanding into new areas and beefing up staff are examples of potential pitfalls. Of course, even corporate titans get into trouble.

By style

A "growth" company is one that is expanding at an above-average rate, much as tech companies did in the 1990s.

Catch a successful growth stock early on, and the ride can be spectacular. But again, the greater the potential, the bigger the risk. Growth stocks race higher when times are good, but as soon as growth slows, those stocks tank.

The opposite of growth is "value." There is no one definition of a value stock, but in general, it trades at a lower-than-average earnings multiple than the overall market. Maybe the company has messed up, causing the stock to plummet - a value investor might think the underlying business is still sound and its true worth not reflected in the depressed stock price.

A "cyclical" company makes something that isn't in constant demand throughout the business cycle. For example, steel makers see sales rise when the economy heats up, spurring builders to put up new skyscrapers and consumers to buy new cars.

But when the economy slows, their sales lag too. Cyclical stocks bounce around a lot as investors try to guess when the next upturn and downturn will come.

By sector

Standard & Poor's breaks stocks into 10 sectors and dozens of industries. Generally speaking, different sectors are affected by different things. So at any given time, some are doing well while others are not.

In most cases, finance, health care and technology tend to be the fastest growing sectors, while consumer staples and utilities offer stability with moderate growth. The other sectors tend to be cyclical, expanding quickly in good times and contracting during recessions.

How much should you pay?

The right way to use P/E and other valuation tools

When times are good, investors think the happy days will last forever, and they are willing to pay exorbitant amounts for earnings.

When times are bad, they assume the world is ending and refuse to pay much of anything. In assessing how much a stock is worth, investors talk about "valuation," the stock price relative to any number of criteria.

Price/earnings (P/E) ratio

Everybody uses it, but not everybody understands it. The actual P/E calculation is easy: Just divide the current price per share by earnings per share.

But what number should you use for earnings per share? The sum of the past four quarters? Estimates for next year?

There is no right answer. The P/E based on the past four quarters provides the most accurate reflection of the current valuation, because those earnings have already been booked.

But investors are always looking ahead, so most also pay attention to estimates, which also are widely available at financial Web sites.

Wall Street analysts generally compute earnings-per-share estimates for the current fiscal year and the next fiscal year and use those estimates to assign a P/E, though there is no guarantee that the company will meet those estimates.

The P/E can't tell you whether to buy or sell. It is merely a gauge to tell you whether a stock is overvalued or undervalued. Assuming they have the same total shares outstanding, is a $100 stock more expensive than a $50 stock?

Not exactly. Where valuation is concerned, price is dictated by expectations of future performance. If the earnings of the higher-priced company are growing considerably faster than the other, the higher price may be justified.

What's an appropriate P/E? Different types of stocks win different valuations. Generally, the market pays up for growth or enormous profitability. Consider a slow-growing industrial conglomerate and a tech company with fat profit margins and enormous growth potential.

The market will typically reward the second company with a higher P/E.

To quickly compare P/Es and growth rates, use the PEG ratio - the P/E (based on estimates for the current year) divided by the long-term growth rate. A company with a P/E of 36 and a growth rate of 20 percent has a PEG of 1.8.

In general, you want a stock with a PEG that's close to 1.0 (or lower), which means it is trading in line with its growth rate. But for a quality company, you can pay more.

Also, don't get excited by rock-bottom P/Es - some companies are doomed to low valuations. One group the market tends to penalize is cyclicals, companies whose performance rises and falls with the economy.

Price/Sales ratio

Just as investors like to know how much they're paying for earnings, it's also useful to know how much they're paying for revenue (the terms "sales" and "revenue" are used interchangeably).

To calculate the Price/Sales ratio, divide the stock price by the total sales per share for the past 12 months. You could also use revenue estimates for the next fiscal year, which are being published more frequently on financial Web sites.

Like P/Es, Price/Sales ratios are all over the map, with fast-growers tending to get the highest valuations.

Price/Book Value ratio

Defined simply, book value equals a company's total assets minus its total liabilities and intangible assets. In other words, if you liquidated a firm, this is what the leftover assets would be worth after paying off all your creditors.

On the balance sheet, book value is represented as "shareholders' equity." (Dividing this aggregate total by the number of shares outstanding will give you a per-share book value.)

This is a more conservative measure, which embraces a "bird-in-hand" philosophy of valuation. Investors use it to spot cases in which the market is over- or undervaluing a company's true strength.

For example, a retailer that owns the buildings its stores are housed in might be sitting on unrealized real estate gains.

Buying Stocks Direct On The Net

Over the past year or so several companies on the net have started offering the individual investor an avenue for directly investing in an increasing number of companies. This allows investors to buy small amounts of stock without having to pay large commissions to brokers. This is an excellent way to get your foot in the door in the investing world. What follows are profiles on most of the major players in this field.

• BuyandHold.com www.buyandhold.com - Of all the firms that we checked into, this is or favorite. BuyandHold offers more than 1,400 stocks through their service and only requires a mere $20 minimum to open an account. They allow customers to buy and sell stocks twice daily for only $2.99 per transaction. They offer automatic weekly, monthly and quarterly investment plans making dollar cost averaging a breeze. Combine that with good customer service response and no inactivity fees and you will be hard pressed to find a better plan.
  
  

• ShareBuilder (NetStockDirect) www.sharebuilder.com - ShareBuilder offers substantially more stocks than BuyandHold (2000), however, other areas of their program don't seem to compare as well. Although there is no minimum amount needed to open an account, you are charged $11.95 if you have fewer than four transactions in a year. Currently, ShareBuilder makes their purchases on a weekly basis for a fee of only $2, if the purchases are made on their available weekly/monthly auto-investment plan. One time purchase fees are $5. They do make their stock sales on a real-time basis, but the fee per sale is a whopping $19.95. Finally, I had several problems getting their customer service department to answer the most basic of questions. Hopefully this is just growing pains on their part.
  
  

• StockPower www.stockpower.com - StockPower is perceived as a competitor to the previously profiled sites but in fact it is not. Whereas ShareBuilder and BuyandHold are basically brokerages that make money through transaction fees, StockPower generates their revenues from corporate clients by providing a way for investors to access their direct purchase plans. Their customer service responsiveness was nothing short of excellent. While the site is easy to navigate and well put together, there are relatively few companies from which to choose from. If they can bring on board a substantial number of new corporate clients they very well may become a force to be reckoned with.
  
  

• DirectInvesting www.directinvesting.com - DirectInvesting is basically the online version of The Moneypaper, which is a service designed to allow an investor to purchase their first share of stock in any of more than 1,300 stocks that offer direct purchase plans. Once you purchase the share(s) of your choice, they aid you in enrolling in the company's direct purchase program. An annual membership in the program runs $49 and the fee for purchasing the first share is $15 per company; however, if you do your homework and know what companies you want to enroll in you can take advantage of their 24-hour membership for just $10. Customer service response time was adequate.
  
  

• FolioFN www.foliofn.com - FolioFN is a relative newcomer to the scene and they do not appear to be well suited for the beginning investor. For an annual fee of $295 you receive unlimited trades in their pre-determined portfolios. If you follow our advice of limiting your trading costs to 2% annually, you would need to start out with a $15,000 portfolio to meet that goal.
  
  

Most all of these companies offer some type of program to help get you started in direct investing with nominal fees. Do your homework and find the program that is best suited for your particular situation. You will be amazed at how quickly you can accumulate stock with just a few dollars a month in a simple automatic investment plan.

Madras SE members to trade directly on NSE

The National Stock Exchange has decided to permit members of the Madras Stock Exchange to trade directly on the NSE in both cash and F&O segments.

The facility will be made available from November 5 under an arrangement between the NSE and the Madras Stock Exchange (MSE). SEBI has approved the deal, an official of the national bourse said.

Under this arrangement, MSE members trading on the NSE terminal will issue their own contract notes as members of MSE. The funds and securities for the trades will be routed through the MSE. Members’ capital adequacy requirements will also be according to the norms applicable at the MSE. However, the exposure limits and margining will be according to NSE rules, said an official of the Madras Stock Exchange. They would also have to follow NSE compliance requirements.

SEBI had permitted regional stock exchanges membership on national stock exchanges through their subsidiaries, which were allowed to trade only in the cash segment. For this purpose, the MSE had floated a subsidiary, which somehow remained non-operational and would now be wound up as MSE members can directly trade on the NSE.

The national bourse has also allowed stocks listed on the Madras Stock Exchange to be traded on the NSE terminal under the “permitted category”. This is for the first time after 2003 that the NSE is allowing trading of shares in the permitted category.

These stocks will be selected on the basis of certain parameters, including compliance, track record and financial performance, said an official at MSE.

The move is expected to help small and medium companies (which are not eligible to get listed on the NSE) have their shares traded on NSE, thereby getting better liquidity and fetching better valuations, the official said.

Though the number of stocks to be allowed to be traded on the NSE is not known, an official said more than half of the MSE-listed scrips will be traded.

The tie-up, the first one for the NSE with a regional exchange, is expected to help the former to boost its trading volumes and turnover. The national bourse is open to similar arrangements, said an official.

NSE’s idea is always to be more inclusive in its expansion, said the official. “So, if there is a regional exchange which somehow wants to provide a new business model for its members, we are always ready to work out how that can be done.”

Market Report - Asia Up on US GDP

Asian shares were up today after Wall Street climbed on data showing the U.S. economy returning to growth.

Japan's Nikkei gained on the back of exporters such as Canon, while Japan Airlines rose after turning to the government for a bailout.

South Korea's Kospi climbed as Samsung reported its best ever quarterly net profit.

China's ChiNext stock market is now up and running. It’s a long-awaited Nasdaq-style second board. It kicked off trading with strong gains.

The first batch of 28 companies made their debut as part of the Shenzhen Stock Exchange, with film producer Huayi Brothers soaring.

Separately, in Hong Kong banks jumped as China's Minsheng Bank prepared to market its IPO after China's banking regulator reportedly approved its listing plan. link....

Bharti Airtel stock plunges over 6 pc to one-year low

MUMBAI: Shares of Bharti Airtel plunged over six per cent weighed down by investors' fear that a tariff war could erode future profits, although third quarter net was up 13 per cent. During the day's trade, the company's top-valued telecom firm saw its stock falling to Rs 290.55, its lowest in a year, at the Bombay Stock Exchange. It later settled at Rs 292.15, down 6.38 per cent from the previous close.

At the National Stock Exchange, the stock fell 6.19 per cent to close at Rs 292.50, after hitting an intra-day low of Rs 290.15, a 52-week low at this bourse.

Today's fall in the company's share price, following which Bharti Airtel has seen about a third of its market value getting eroded in a month, followed investors selling off the stock

heavily despite a net profit growth of 13 per cent being reported for the third quarter earlier in the day.

The scrip lost over 11 per cent in one week and over 30 per cent in the past one month amid a tariff war to garner market share, which investors fear would come at the cost of profit margins.

Bharti Airtel also today joined the bandwagon of operators offering a per-second call rate.

With competition hotting up and many telcos offering low tariffs, Bharti Airtel saw a 24 per cent drop in average revenue per user in Q2 to Rs 252 with 52 per cent of the new additions coming from the low-paying rural subscribers.

Analysts said shares of the country's largest private sector telecom operator dropped on concerns of rising competition in the telecom sector and dirt-cheap tariff being offered by some of the existing as well as new players.

Bharti Enterprises Deputy Group CEO and MD Akhil Gupta said, "With intense competition and irrational pricing in some pockets in the short term, we could see some impact on the top and bottom lines."

On the National Stock Exchange, Bharti Airtel ended down 6.19 per cent at Rs 292.50. During the trading hours, the scrip had witnessed a low of Rs 290.10. On the volume front, 3.95 crore shares changed hands on both the bourses.

Bharti Airtel today reported a 13 per cent rise in the second quarter net profit at Rs 2,321 crore as cheap call rates offered by competitors and rising number of low-tariff customers pulled down the rate of growth. link....

Nikkei Stock Average closed at 10,034.74 up 143.64 points

TOKYO - The Nikkei Stock Average of 225 issues closed at 10,034.74 on the Tokyo Stock Exchange Friday, up 143.64 points or 1.45 per cent. link...

UPDATE 1-NYSE open disrupted by flood of orders

A huge influx of orders prevented the New York Stock Exchange from disseminating quotes shortly after the start of trading on Friday.

NYSE Euronext (NYX.N)(NYX.PA), the parent of the New York Stock Exchange, said the delays followed "an inordinate influx" of orders received as Friday's session got under way. Later in the session, the company had to temporarily transfer quote processing to a backup system.

The exchange's quote delays caused some tickers to be locked, but an NYSE spokesman said "trades are still going through." NYSE's Ray Pellecchia also told Reuters the cause of the problem was still under investigation, and declined further comment.

Traders who declined to be identified said the interruption was caused in part by the early sell-off as well as by NYSE technology.

The interruption on the NYSE and in the NYSE Amex cash equities trading was later resolved.

Equities were under pressure Friday, as the S&P 500 index fell 2.4 percent .SPX and the Dow industrials .DJI lost 2.2 percent, one day after the biggest percentage gain in more than three months.

Shares of NYSE Euronext slid 5.7 percent to $26.00 after the NYSE's parent company reported quarterly profits that exceeded estimates, helped by cost-cutting [ID:nLU559590]. (Reporting by Ellis Mnyandu and Caroline Valetkevitch, Editing by Jan Paschal) link...