Road map for a cautious investor.

Novice looks to achieve her goals gradually but needs to take on more risk

At age 27, Naeemah K. Abner is reaping the returns from a modest $3,000 investment portfolio, a strategy that is moving her several paces ahead of her peers. For Abner, her interest in investing began while she was pursuing her undergraduate degree in social work at Burgers University in New Jersey. Like many college students, Abner was strapped for cash. "I cashed the [savings] bonds that my great grandmother bought for me at my birth and used the money to pay for my books," says Abner. The total value of her savings bonds was $1,200, and she was intrigued that some of the bonds had tripled in value, yielding $75 for every $25 her great grandmother had invested.

Initially, after graduating in 1996, Abner had difficulty landing a job, but eventually she nabbed a spot as a program coordinator at Directions for Youth in Brooklyn, New York. Within 14 months, she was promoted to program director Although the nonprofit organization doesn't provide a retirement plan, Abner has a safe, built-in perk. Her job pays 15% per year toward her $5,000 student loan, allowing her to concentrate on clearing the other loans, credit card and miscellaneous debts she is saddled with.

Over the past two years, Abner has contributed $100 a month to two mutual funds--$50 to Washington Mutual Investors (Nasdaq: AWSHX) and $50 to New Perspective (Nasdaq: ANWPX), sponsored by American Funds Group. In that time, she has earned a tidy profit of $600. Not bad for a first-time investor who decided to try something other than the safe but boring passbook savings account.

Despite the low return on the money she keeps there, Abner also maintains a checking account with HSBC Bank, which she uses to take care of her monthly expenses. However, she admits to feeling more empowered when she reviews her monthly fund statements and sees how her investments have grown.

The question remains: is she willing to devise a more sophisticated investment plan? Not quite, despite the fact that she already has some exposure to stocks through her two mutual funds. "I'm very nervous about the stock market and prefer something stable like the portfolio that I currently have," Abner says. As a result, because she isn't invested in individual stocks, she isn't as worried when the Dow Jones industrial average drops.

But this cautious approach won't help Abner reap greater returns on her money. Financial advisors say Abner will do far better for herself if she moves toward a more solid investment approach. Putting aside a modest $50 per fund a month is a fine way to get your feet wet, they suggest, but after two years of socking away money in more conservative stock funds, it's time to take a little more risk.

Abner is not really buying this sort of talk right now. With $17,000 in student loans and credit card debts eating up large chunks of her salary, she is sticking to the financial needs assistance program that she worked out with an advisor some time ago. She has since changed advisors because she felt she wasn't getting enough attention from the ones she had. "It just appeared that my investment was too small for them," she muses. As she toys with the idea of entering graduate school, Abner is poised to either earn more with her investment portfolio or cautiously continue on the path she embarked on two years ago.

Financial Snapshot:

Naeemah K. Abner

Annual gross pay            $35,000

Montly household expenses       700

Investment portfolio
Mutual funds

Debt/liabilities             17,000
Student loans/credit
card bills

RELATED ARTICLE: Expert Advice

FINANCIAL EXPERT;. Kenneth C. Jones Jr., assistant managing director, the MONY Group, New York, New York

His Strategy: Abner is cautiously moving in the right direction, but in order to move ahead financially and reap greater returns from her investment portfolio, Jones says she needs to have four main goals: (1) eliminate debt, (2)increase savings, (3) establish an emergency fund and (4) set up a retirement plan. Jones says the most crucial concern for Abner is to rein in her debt.

Jones' Recommendations:

* Eliminate debt: Abner should carry out an aggressive debt-reduction strategy over the next three to five years in order to eliminate her outstanding debt. Otherwise the interest from her credit cards will erode the profits from her portfolio. "Earning 10% to 12% on your investment portfolio and paying out 18% to 21% in consumer debt doesn't help you realize a profit on your portfolio, no matter how well you are invested," he cautions.

* Increase savings: By setting aside as little as 10 cents for every dollar she earns, Abner can pull in $3,500 per year in extra savings. If she puts this cash into a money market account, she'll see greater returns than the traditional savings account. As she eases her debt burden, it would be good for her to put extra savings into her money market account.

* Utilize asset allocation: Now that Abner has gotten her feet wet with investing, she should plunge into asset allocation. This will diversify her holdings and position her for greater returns. A good way to start is for her to allocate additional savings to her portfolio and divide it among the following funds: Blue-chip/growth, 60%, Enterprise Growth (Nasdaq: ENGRX); aggressive growth, 20%, Flag Investors Communications (Nasdaq: TISHX); international, 10%, Fidelity Europe (Nasdaq: FIEUX); and high-grade bonds, Fidelity Intermediate Bond (Nasdaq: FTHRX).

* Prepare for retirement: Since Abner's job does not provide a 403(b)retirement plan, she should set aside $50 a month toward an IRA or Roth IRA.

* Start an investment club: The best way for Abner to overcome her discomfort with the stock market is to start an investment club with friends or co-workers. Jones explains that since Abner trusts her friends more than a broker, the group dynamic of an investment club would help dispel some of her reluctance toward tackling her finances.

--C.B.3