OK, let's pretend a couple just got an inheritance of $150,000. They've come to me to invest it, but are worried about an overheated market. I wouldn't advise them to try to time the market top, because no one's been able to do that over the long term. Instead I'd use " dollar cost averaging " : investing over six to 12 months, in equal amounts. That way, you get six to 12 different prices, to create an average cost for each holding. This alleviates the problem of investing all your money at what could be, in hindsight, a market top. I would also remind these folks that the Dow Jones Industrial Average has risen eleven-fold since 1982, and that being in the stock market tends to be a rewarding experience.

I'm assuming this couple has a reasonable tolerance for risk, and they're looking at retirement in 12 to 15 years. I would take an asset-allocation approach, that is, diversifying holdings among a variety of investments. And I'd put together a growth-oriented portfolio, which is appropriate for the 12- to 15-year time frame.

In the portfolio shown here, I've put 90 percent into socially responsible mutual funds, and 10 percent in small company stocks. Among funds, I put 40 percent into blue-chip or balanced funds (Domini Social Equity and Calvert Social Managed Growth); 30 percent into aggressive domestic stock funds (Parnassus, Citizen's Emerging Growth, and Calvert Capital Appreciation); and 20 percent into a global fund (Citizen's global equity).

Mutual funds are appropriate because of the diversification they offer. The $135,000 in six funds is varied by asset class and management style, as well as representing ownership in hundreds of companies within dozens of industries. You couldn't dream of achieving this diversification by investing the same amount in individual stocks. Of course, the trade-off is you lose control over precisely which companies you're invested in. That's where the 10 percent for individual stocks has its appeal.

In the chart, I've listed 12 stocks (six under $5, six over $5). I'd ask investors to choose five to 10 of these, and invest equal amounts in each. Investors most concerned with environmental issues might consider pollution-control equipment manufacturers such as MetPro or Midwesco Filter; High Plains, which produces ethanol; and Greenman Technologies, which recycles tires and plastics. Those concerned with health-related issues might consider Cyanotech, producer of natural foods like spirulina, or Fiberstars, creator of Wallaby Infant Jaundice light treatment system. Also on the list is Life USA, winner of a 1997 Business Ehtics Award, and the only employee-owned life insurance company in the nation.