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How should I invest my $3,000 nest egg?

September 14, 2012: 6:30 AM ET

I have been trying to figure out how to start an investment portfolio. I have retirement savings through my company's 401(k), a Roth IRA and personal savings. I have a small sum (less than $3,000) but I am trying to plan for the long run. Do you have any suggestions on how to start small and grow the investment over time? — Michael C.

Step one is to avoid stashing that cash in individual stocks, says Cheryl Costa, a principal at Forteris Wealth Management in Framingham, Mass. "A portfolio that small invested in just one or two stocks is pretty much a gamble," she says.

Instead, Costa suggests target-date funds. Like other mutual funds, target-date funds allow you to invest across a broader range of investments than you could by investing small amounts on your own. What's more, target-date funds automatically adjust the mix of investments you hold according to the length of time before a target day (typically your expected retirement date). "It's basically autopilot for your investments," says Costa.

As you accumulate more money down the line, you can make additional contributions to the target-date fund. And if your goals change, you can always change your plan accordingly. "When you reach $50,000 you may be all set to move the assets and have them more professionally managed," says Costa.

— Austin Kilham

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