Dr. Don,

I'm 35 years old, make $96,000 a year, pay $18,000 each year in child support for my two children and am trying to plan for retirement. I get an annual bonus at work, which I'm typically able to sock away: This year, I expect to put up to $25,000 in the bank. I'll also contribute 6% to my 401(k), and my company matches half of that. I want the best for my kids, who are three and six. I keep money invested for them in my name in a taxable account so my ex-wife won't have control of the money. I also have a personal account where I've bought a few stocks on the recommendations of friends and my own research. I recently invested in three mutual funds through this account to help staunch the bleeding, and I've decided to let experts pick my stocks for the most part going forward. I also have lots of cash in money market investments. Yours truly, RB


First things first. Spend some time clarifying your goals to help you determine what specifically needs to change in your portfolio. Decide, for example, whether you plan to have enough in the college account to fund public or private university educations. Figure out whether you'd like to pay for graduate school. And ask yourself when you'd ideally like to retire. Defining your goals helps you determine the effort needed to reach them.

Then take a holistic approach to managing your investments. This will help you eliminate duplicate investments in your various accounts, set up the proper asset allocation and give you the right weighting for each investment. You'll be able to figure out, for example, whether you really want one stock -- in this case, Pfizer

(PFE) - Get Report

-- to make up 7.8% of your holdings. An individual holding should represent at least one percent of the portfolio's assets, but once it gets over 5% you need to be comfortable with the added risk it presents.

Allocating your money among asset classes will help you reduce risk and, ultimately, boost returns. Once you've figured our your various goals, ask yourself whether you're comfortable with your current allocations. Running your holdings through Morningstar's Portfolio Manager program, I found that your stock portfolio has an emphasis on large-cap growth, while large-cap value predominates in your mutual fund holdings. And you also have a big weighting in small cap: You have 16% of your money in

(NBGEX) - Get Report

Neuberger Berman Genesis, which specializes in small-cap investing, yet you also own two other small-cap funds and three small-cap stocks -- Exchange Applications


, Insmed

(INSM) - Get Report

and Microstrategy

(MSTR) - Get Report


On the college-savings front, I'd consider opening a so-called

Section 529 College Savings Plan. Starting next year, the new tax bill makes qualified distributions out of these plans free from federal taxes. Many states also provide tax breaks on these accounts for their residents. That's a much better approach than keeping the money in your name and paying income and capital gains taxes on the money at your tax rate. Check out

Savingforcollege.com to learn more about the specifics of these plans.

Among your individual stock holdings, you're accumulating a pretty long list of what I call Confederate stocks, so named because -- like the South -- you hope they'll rise again. Remember, though, that when a stock drops a lot, like


(T) - Get Report

65.2% decline last year, it has to have a much greater return from that point just to get back to where it was (in AT&T's case, the stock would need a 187% return to return to where it was at the beginning of 2000). So be willing to use some of the losers in your portfolio to offset gains you'll have to recognize if you want to fund a college savings plan.

Also, keep in mind that switching to mutual funds from individual stocks in your taxable account doesn't necessarily mean you'll turn losses into gains. Professional money managers aren't always right, but at least they have to justify their stock picks to their investment committees.

Another thing: Cash and bonds represent about 30% of your portfolio. It's hard for me to recommend investing in bond funds given current interest rates, but adding a bond fund to represent 5% to 7% of your portfolio would lessen the emphasis on cash and should improve your yield.

I recommend fully funding your 401(k) instead of funding only up to the limit of your company's matching program. That will put more of your retirement investments in a tax-deferred account, keeping your money working for you instead of for the U.S. Treasury, and making it easier to reach your retirement goal.

Finally, you have a $100,000 portfolio, which doesn't require nine mutual funds and nine individual stock holdings. Go beyond the investment style of the funds and review their individual holdings. That will help you understand how each fund fits your overall financial goals.