For the average investor, developing a plan to address long-term financial goals is intimidating. The result is that most people place their savings into low-rate-of-return conservative investments or cash. One important aspect of this strategy is the need to consider the impact of inflation on your savings and the fact that a balanced approach to long-term investing has historically paid off when compared with just investing your savings in certificates of deposit or savings accounts. If you are entirely invested in short-term investments or cash, even a low rate of inflation can substantially reduce your purchasing power over time, and this could affect your standard of living during your retirement years.

Diversification and proper asset allocation are the foundation of a successful long-term investment strategy. First, whether you are an experienced or average investor, you need to define your long-term goals, objectives, and your risk-tolerance level to market fluctuations. This is an essential step because it will help you select a suitable investment asset-allocation plan. In general, markets tend to be volatile in the short term, but have proved to be on the side of the investor over long periods of time.

The next step is to develop an asset-allocation plan. An asset-allocation plan includes a percentage mix of bonds, equities or stocks, and cash. The percentage allocation of this mix is determined by your ultimate needs (e.g., your annual retirement income needs or the cost of your child's college education) and your risk-tolerance, which ultimately will affect the return levels of your investment. Expect low return levels over time if your risk factor is very conservative and greater returns (but also higher risk) for very aggressive investors. The asset-allocation mix will have a higher percentage of stocks in your portfolio for aggressive investors and a higher percentage of bonds and cash for conservative investors. You can test asset-allocation models based on your return needs and risk tolerance by using our Asset Allocator tool.

Some ideas of simple long-term investment options include target-date funds, index funds, and index funds complemented by sturdy active funds or all active funds. In the next slides you will find a brief description for each of these options, but read Christine Benz's new book 30-Minute Money Solutions for additional details and insight on these long-term investment vehicles.

Target date funds are mutual funds in which the mix of stocks, bonds, and cash equivalents are adjusted as your anticipated retirement date approaches. Target-date funds are a relatively simple investing option for long-term-focused portfolios that do not require a high level of management. While investing in target-date funds makes investing for the long term easier, it is important to keep in mind that these lifecycle funds typically are composed of funds within the same fund family, which increases your risk if the fund family faces operational problems or has a weakness in certain asset classes, such as bonds. You also have less control over the mix of these funds because they are created with the same allocations for all investors with the same retirement target date.

Among your investing options are index mutual funds, in which the manager is aiming to mimic the performance of an index--such as the S&P 500--and match the index return. Due to the minimal management required to run these types of fund, they typically offer lower fees, which tends to give them a performance advantage over time. Click here or here for more information on how to pick an index fund, or watch the below video from Christine Benz on the key criteria to keep in mind for identifying the best index funds.

When determining the proper investment vehicles in each of the categories in your asset mix, be sure that they match your long-term objectives and goals. If you are comfortable managing your portfolio yourself, be prepared to dedicate a fair amount time researching different investments before committing your savings. You can use Morningstar.com to conduct research on high-quality, no-load funds (typically favored by do-it-yourself investors), or alternatively, you can consider getting professional help from a trusted and reputable financial advisor and use Morningstar.com to further research his or her recommendations.