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Getting started.

These two words often turn up as a theme in my emails asking for advice on investing. So, for today's


, rather than look at an individual's portfolio, I'm going to pass along my advice to readers in their 20s or early 30s on what they should consider when starting to invest.

Take a holistic approach to your investments. It's all your money, so make sure the right hand and the left hand are working together. Most people wind up investing in real estate when they purchase a house; they hold cash in their checking accounts, hold mutual funds in their retirement accounts and stocks and mutual funds in a taxable brokerage account. Over-weighting your portfolio with a single type of investment makes the portfolio too risky. Don't bet the ranch, no matter how right you think you are about an investment. Just because you have time to bounce back from a foolish mistake doesn't mean you're required to make them.

On the other hand, I think that nearly all portfolios should have a speculative component to them. For most people this will be the part of the portfolio that they will actively trade. I like trading in IRA accounts, whether they're Roth or traditional IRAs. If you're going to be in and out of positions, it's appealing to do it in an account where you don't have to worry about the tax implications of your trading. It also limits the amount of money you put at risk, because of the contribution limits on the IRA accounts.

You need to be aware of the tax implications of your investments but don't let taxes be the tail wagging the dog. Manage your portfolio to limit what you have to give to the taxman but don't let your assets atrophy in investments that have seen their day just to avoid taxes.

But I'm getting ahead of myself. Start out with a cache of cash. I know it's not as exciting as the stock market and in most years you can't brag about the performance of your money market fund (last year was an anomaly), but you need a cushion to keep you afloat should you find yourself between jobs, if your car breaks down or to buy something without paying 20% interest on your credit card. Letting a balance run on your credit cards can help your credit rating by showing that you can manage a repayment schedule, but if you're repaying student loans, a car loan, or a mortgage, and you're current on those payments, you've made that point at much lower interest rates.

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Three to six months' worth of living expenses in your cache is what most financial planners recommend. I'm at the shorter end of this spectrum. As you prosper, you'll be able to lessen the emphasis on cash investments for emergencies because you'll be able to tap other investments in bridging financial obstacles -- like a home equity line of credit.

Just starting out, you're likely to be in the lowest income tax bracket in your working career, at least until retirement. It makes sense to fund Roth IRAs when you're in a low tax bracket. Roth IRAs are funded with after-tax dollars but qualified distributions are tax-free in retirement.

If your company matches a portion of your 401(k) plan contributions, you should try to contribute at least up to the limit of the match. Your employer is willing to help you finance your retirement. You should take them up on that offer.

Financial writers always expound on the benefit of starting to invest for retirement in your 20s and 30s because it makes it that much easier to reach that goal. The conflict is that you are probably also trying to buy a home, furniture or a car and those needs are more immediate. Try to strike a balance between long-term and short-term financial goals.

You can tap your IRA accounts for first-time home purchases, education and financial hardship (as defined by the U.S. government) without paying a penalty (just the taxes due) but if you have to raid your retirement accounts you'll pay taxes on any tax deferred contributions and investment earnings plus you'll owe a 10% penalty for that early distribution. You should be more conservative in investing for short-term goals, like the down payment on a mortgage or a new car. Swinging for the fences can keep those goals outside your grasp longer.

When choosing your investments, start conservatively and know the expenses associated with them. If you start a retirement account and have it invested in four different mutual funds, you've quadrupled any annual administrative fees. Concentrate your investments in a diversified fund when you're starting out, vs. diversifying in concentrated funds. As your investments reach critical mass, you can start spreading them around. Tax efficient funds are more useful in taxable accounts. Tax advantage retirement accounts don't have to worry about turnover in the funds so place the more actively managed funds in those accounts.

Dr. Dr. Don Taylor has been an investment professional for nearly 15 years, most recently as the treasurer for a nonprofit organization where he managed more than $300 million in assets. He is a chartered financial analyst, holds a Ph.D. in finance and has taught investment and personal finance courses at the University of Wisconsin and at Florida Atlantic University. Dr. Don's Portfolio Rx aims to provide general investing information. Under no circumstances does the information in this column represent a recommendation to buy or sell. Dr. Don welcomes your inquiries and feedback at