Like so many of us, Lisa Glover makes a lot of the right money moves. This 40-year-old single mom pays her bills on time, puts a little cash aside each month for retirement and saves for her 4-year-old daughter's education. But that's as far as she gets. The bigger goals, like buying a two-bedroom condo and building an emergency fund—well, the money never seems to stretch that far. "I've been living in financial denial," Lisa admits. Like Lisa, most moms find the money for ballet lessons and iPods but forgo building an investment portfolio. A 2005 survey by OppenheimerFunds found that women usually do their household's budgeting and bill paying but leave the investment decisions to someone else. Lack of confidence is one reason: Fourth-quarter results, interest vs. yield, compounding—who has the time or energy to learn all that jargon? In a 2006 study by Prudential Financial, two thirds of women graded their financial literacy a C or below. "But if we really want to take care of our families, we need to become smart investors," says Georgette Geller-Petro, a financial planner with AXA Equitable. The good news is that we're already better at investing than we realize. Men tend to chase the market, buying and selling impatiently rather than buying smart investments and holding them for a long time. One study showed that married men traded 45 percent more and earned 1.4 percent less in average annual returns than married women. To help more women gain confidence and know-how, we introduced three working moms to financial planners from some of the country's most respected firms. What they learned can educate and inspire families at every income level.Single MomLisa Glover, 40, Newmarket, NH Job: Researcher/planner for efficiency programs for a power company Child: Gillian, 4 Household income: $61,000 ($55,000 salary plus child support) Retirement savings: $14,000 in her 401(k) College savings: $1,000 Outside investments: None Emergency fund: None  Goals

  • Buy a home
  • Build an emergency fund
  • Save for retirement
  • Save for Gillian's college education.

    Lisa Glover thought she was doing just fine—until her car broke down. Her $61,000 annual income went a long way in her affordable New England town. But when her vehicle needed $500 in repairs last fall, she didn't have any money to cushion the blow. What she did have was $2,000 in credit card debt, plus student loan payments. Lisa dreams of buying her own home and of having enough money to contribute to her daughter's college tuition and to retire—but she keeps experiencing small setbacks. "I know I could be doing so much better," she says. We asked leading financial planners Georgette Geller-Petro and Beth Botti of AXA Equitable in Stamford, CT, to come to Lisa's aid. The duo analyzed Lisa's spending patterns and long-term goals and came up with some surprising findings. First, it was clear that Lisa was spending too much: She had only about $50 left at the end of each month. While her $700 monthly day-care expense was a necessity, her constant impulse buys—usually toys and clothes for Gillian—weren't. She deposited 6 percent of her monthly salary into a retirement plan and another $50 a month in a college fund, but she invested those savings poorly. She poured the retirement money into aggressive growth funds rather than diversifying the account, which would have offered more protection. Worse, she had no estate plan, no emergency fund and only minimal life insurance. In other words, Lisa had no peace of mind. Here's what her advisors recommended:

    Will Lisa must appoint a legal guardian and make financial provisions for Gillian in case something unexpected happens.Life insurance A 20-year term life insurance policy with a death benefit of $325,000 (cost: about $50 a month) will provide for Gillian in the event of Lisa's premature death.

    Housing If Lisa bought an inexpensive apartment, she would be able to reduce her housing costs and pay less for a mortgage than she now pays for rent. She'd diversify her investments, add to her tax savings, realize her dream of home ownership and build equity to help finance her daughter's college tuition. Retirement savings Lisa should move the money currently in her 401(k) plan's S&P 500 index fund into its "Lifestyle 2030" fund. Lifestyle funds, also called target date funds, are now offered by many companies, including Vanguard and Fidelity. They automatically allocate assets based on a target retirement year. There's nothing wrong with S&P 500 index funds, but most of us need more than just large U.S. company stocks in our portfolios. Advisors usually recommend mixing large and small domestic stock funds, international stock funds and bonds. Some advocate mixing value and growth funds.

    Choosing a variety of bonds and funds can provide growth with less volatility. For someone more than 20 years from retirement, lifestyle funds pick relatively aggressive investments. But the best part for Lisa is that she can "set it and forget it"—she won't have to keep checking her portfolio to make sure she has the right mix of investments. "In an ideal world, we'd all manage our own portfolios, but the reality is that our kids have runny noses, our offices get crazy, and suddenly, two years later, all our money is still in the S&P 500," says Geller-Petro. "The more you put on autopilot, the greater your chance of success." College savings/Emergency fund Lisa should create an emergency fund with three to six months' salary. When that's done, she can restart her contributions to Gillian's college account. The bottom line Talking to the advisors was a wake-up call for Lisa. "I felt shocked to see I was only saving fifty dollars a month," she says. "And I was surprised that they recommended I stop saving for Gillian's education. But I see there are more important things to do with our money right now." Within days, Lisa started checking real estate ads. "I thought we'd just keep getting by like everybody else," she explains. "But this shows me that I can do so much better. I can make choices that will make us much more comfortable and stable than we are."Career in Transition     Gwynne Spann, 32, Sacramento, CA Job: Marketing consultant/project manager Marital status: Married to Jason, 37, a landscape architect Child: Kayla, 16 months Household income: $118,000—but unpredictable because Gwynne was laid off recently and has started her own consulting business Retirement savings $94,000 in 401(k)s and IRAsCollege savings: $1,000 (Kayla's grandparents plan to contribute $2,000 a year) Emergency fund: Six months of expenses in a money market account Goals

  • Have another baby
  • Buy a larger house
  • Save for college.Gwynne Spann was ready for a career change—she just didn't expect one quite so soon. She enjoyed her part-time marketing job at Intel, which left her plenty of time to be with her toddler. She'd thought about looking for a more fulfilling career someday. Then she got her pink slip. "Suddenly I'm going from having a steady income with a 401(k) and profit sharing  to a less predictable income and having to figure out retirement without the guidance of a corporation," Gwynne says. She now works for herself as a marketing consultant and is currently enjoying a lucrative gig. But she and her husband, Jason, still thought a financial checkup was in order. We matched the family with Alyssa Moeder, a private wealth advisor from Merrill Lynch. Her recommendations:
    Will The Spanns have no estate plan. They must name a guardian for Kayla and make financial arrangements for her ASAP. Life insurance Jason has a $200,000 life insurance policy, but Moeder recommends ramping it up to $1 million and suggests that Gwynne sign up for a $450,000 policy as well. The couple can afford low-cost term policies, Moeder says. Retirement savings The Spanns spend about $54,000 a year. By the time they retire in 2030, inflation will have turned that into $95,000. To keep spending at the same level, they must save about $15,000 a year, earning 6 percent to 7 percent annual interest.

    Gwynne can put up to $4,000 per year in an IRA and may roll her old 401(k) into it, too, if her tax planner agrees. But Jason will need to increase his retirement contribution at work to make up for her lost plan. If Gwynne's new career takes off, she can set up a tax-deductible SEP (simplified retirement plan), which allows self-employed people to put away up to 20 percent of net earnings—much more than a traditional IRA.

    The Spanns' retirement funds are almost totally invested in stocks, but the risk-averse duo would be better off buying stock and bond mutual funds, especially those that invest in large companies, Moeder says. She recommends keeping 5 percent of their portfolio in cash investments, such as money market funds, which would help provide some extra stability. College savings When Kayla goes to college, private university tuition will cost about $66,000 per year, so the Spanns need to invest $10,000 in a 529 plan that earns about 6 percent annually. Fortunately, Kayla's grandparents plan to kick in about $2,000 a year. Moeder recommends an "age-based" fund (like the target date funds discussed above) that rebalances automatically, growing more conservative as Kayla approaches college.

    The bottom line The Spanns seem to be on track for now, but more change may be on the horizon. "We'd like another baby," says Gwynne, who is unsure whether she'll keep freelancing or find a staff job. "Review your financial plan annually—more often if circumstances change," advises Moeder. "Sometimes things don't work out the way we plan. Remember, a financial plan is a snapshot, and the picture changes constantly."Double Trouble   Stacy Hunt, 37, Ashburn, VA Job: Accountant Marital status: Married to Paul, 44, a computer engineer in information security Children: Kyler and Christopher, 17 months Household income: $250,000Retirement savings: $296,000 in IRAs and 401(k)s College savings: $30,000 per child in an age-based 529 plan Outside investments: $85,000 in moderately aggressive and aggressive mutual funds Emergency fund About seven months' expenses Goals

  • Pay for college
  • Save for retirement.Stacy Hunt was sailing along until a financial storm hit: twins. With the high cost of living in Ashburn, VA, and full-time day care costing more than $3,000 a month, she and Paul soon found themselves spending more than they were earning. To tide them over until day care ends, they agreed to pull money from their emergency fund, but they wanted reassurance that they were still on track to meet their goals. "When the boys were born, we put $25,000 into college savings accounts for each of them and added another $5,000 at the end of the year," says Stacy. "I thought that would be enough for their entire education." After meeting with financial planner Rebecca Hall, of Marshall, Hall & Associates (a branch of Ameriprise), she realized it wasn't. "It would cover a state university but not an Ivy League school," Stacy explains.That was just one of the eye-openers the Hunts experienced. They also learned that Paul, who started saving after Stacey, couldn't retire until he was 67—much later than he'd hoped. "My husband was shocked to learn he'd have to work so long," Stacy says. Here's what Hall recommended:
    Life insurance The Hunts need a mix of term and variable universal life insurance, with a $1.45 million policy for Paul (who now has $250,000 in coverage) and a $2 million policy for Stacy (the high earner, with $1.8 million in coverage). Variable universal life insurance may cost more, but it can grow in value and (unlike term) will cover the couple for as long as they live.Retirement savings The Hunts have an aggressive portfolio that's 90 percent stock. It would be wiser for them to invest 50 percent in stock, 40 percent in bond mutual funds and 10 percent in real estate, Hall says. If they retire in 2029 and want to keep spending like they do now (their current monthly expenses are $6,700, not including day care), they need to sock away around 10 percent of their income every year (about $25,800). The money must earn at least 7 percent annually before taxes. If it earns less, they may not meet their goals. A mix of riskier but potentially more lucrative investments (like international stock funds) and safe investments with less growth potential (like bond funds) is likely to give the couple the growth they need to retire, without subjecting them to steep ups and downs. Having different investments that respond to different economic forces (bonds respond to interest rates, stocks to a variety of factors) helps cushion the blow. With stocks, explains Hall, "there's no pattern, which is why you have to have a little of all of them." A portfolio like this could be expected to return an average of 7.66 percent per year.  For the rest of their funds, she recommends a combination of stock mutual funds and bonds: 
    • Large Capital Stock Funds: 28 percent
    • Medium to Small Capital Stock Funds: 12 percent
    • International Funds: 10 percent
    • High gradeHigh-grade corporate bonds:  : 15%15 percent
    • Mortgage bonds: 10 percent%
    • Strategic income bonds: 15 percent% (the manager decides which bond asset
    • classes to use)
    • International bond: 10%

    College savings "Historically speaking, the cost of education has risen at twice the cost of inflation," Hall notes. The Hunts would do well to save $220 per month for their twins' public college education, or $1,780 a month for private college tuition. For now, they've decided to split the difference, putting $700 per month into two 529 plans, where their contributions grow tax-free. An age-based plan will automatically shift their money into more conservative investments as the twins get older. Outside investments Stacy has also made nonretirement investments, 90 percent of which are in stock funds. Hall advises her to diversify among stock and bond mutual funds and real estate, just as she did with her retirement money. Since these investments won't get tax breaks, Hall suggests adding tax-exempt bonds.

  • The bottom line Stacy was relieved to find her goals were still within reach, but it surprised her to realize that her risk tolerance had dropped since she started saving. "I always thought I was very comfortable with risk," she explains. "It was so long-term, I thought I couldn't deal with it. But now I think maybe I'm more conservative than I realized. I'm not as young as I used to be."Smart ChoicesIf you invested $2,000 a year, here's what might happen. (We're assuming all returns are tax-deferred until withdrawn.) Remember, the more risks you take, the higher returns you should expect—but the more likely it is that your portfolio will see some bad years as well as good ones.

    Cheat SheetYou don't need to know the hottest tech stock to make sound financial decisions. In fact, most people are better off not buying and selling individual stocks or making fancy investments they don't understand. "The best investments aren't sexy, they're boring," says Mary Claire Allvine, CFP, coauthor of The Seven Most Important Money Decisions You'll Ever Make. "They're mutual funds or bond funds that you buy and hold for a very long time." So forget chasing hot tips and focus on these important basics.

    Mutual fund A professionally managed portfolio of assets (usually stocks and/or bonds, although some hold a little cash, too), shares of which are sold off to the public. An easy way for small investors to achieve diversification. Domestic stock (or equity) fund A mutual fund that invests in U.S. companies. These funds may invest in "large cap" (big corporations), "small cap" (small companies, often start-ups) or "mid cap" (middle-size) companies.International stock (or equity) fund A mutual fund that invests in non-U.S. companies—a simple way to diversify outside the United States. Value fund A mutual fund that invests in solid companies with "undervalued" stock—that is, stock selling at less than it's actually worth, based on the fund manager's projections for company growth. Value investors—most famously Warren Buffett—like to find "bargain" stocks that haven't been recognized yet. But if the market never recognizes their value, then your bargain won't see much growth.Growth fund A mutual fund that invests in companies that, to the fund manager, seem poised for rapid growth. Stocks in these companies may not be a bargain, but investors are willing to pay a premium for the promise of rapidly increased earnings and, hopefully, stock value. Bond fund A mutual fund that invests in bonds. Some funds specialize in a particular type, such as high-yield (or "junk") bonds, while others include a mix. All bonds are loans that investors make to companies or to the government in exchange for a set interest rate. The company or government pays interest to the bondholder until the bond reaches maturity, when the principal is repaid. Bonds are a safer investment because it's clear exactly how much interest they'll pay over time. U.S. government bonds are considered extremely safe, since the government isn't likely to default. However, most bonds don't protect the holder against inflation. Real Estate Investment Trust (REIT) These vehicles invest in a wide variety of real estate stock, giving investors more diversity than investing in one or two properties on their own.