It is too early to know what will be the fate of North Korea following the death of its “beloved great leader”, Kim Jong Il. For now, markets around the world (especially in Asia) are down amid uncertainty surrounding his succession. But markets are largely expected to calm over the next few days as Kim’s 28-year-old son, Kim Jung Un, takes full control of the country. While little is known about Un, his youth and international experience could be just what the nation needs to shake off its reclusive past and enter the world economic community.

There has only been one leadership succession in North Korea. Back in 1994, Kim Jong Il took over for his father Kim Il Sung, who ran the country for nearly half a century. There were some high hopes for Kim Jong Il to finally drag North Korea out from the shadows. But with every step forward, it seemed that the nation took two steps back.

But one of the positive political and economic developments under Kim Jong Il’s rule was the re-establishment of limited political and economic ties with its neighbor/bitter enemy South Korea. Under the “Sunshine Policy,” North and South Korea created several joint-owned business ventures. The Kaesŏng Industrial Park was created in 1994 as a special district in North Korea that would make goods for export through South Korea and out to the rest of the world. Your new snazzy Hyundai is one of the many South Korean products that are being made in North Korea.

Kaesŏng represented the best of the Sunshine’s economic policy. It was supposed to be replicated across the North but political fighting between the two Koreas put the brakes on any further cooperation.

The Way Forward

Kim Jung Un could change all that. He has not lived very long in North Korea, spending his formative years in Switzerland attending a prestigious foreign boarding school. Un was friends with international kids from around the globe, which must have had an effect on his world view. Throughout junior high, Un learned about democracy and capitalism, so he is not ignorant to the outside world.

Coming back to North Korea last year after so much time in the heart of Europe must have been like entering a time warp for Un. The country’s technological level is equal to that of the 1950s. Power in the capital Pyongyang goes out often as the country’s electrical grid is antiquated. In the city, one of the world’s tallest buildings, the one-hundred-and-five-story Ryugyong Hotel, sits in the shadows, unfinished for nearly two decades, acting as a reminder of the nation’s economic woes.

Kim Jung Un inherits a backwards and broken country, but he can do something about it. While the county’s centrally planned economy teeters on the edge of collapse, the country has great untapped potential. It has a dedicated population that seems to be obsessed with doing the leader’s bidding. It has an abundant mineral resource base which Goldman Sachs valued in 2009 to be worth around 140 times the nation’s 2008 GDP. Further economic integration with South Korea could lead to a gradual increase in living standards. Goldman Sachs estimates that full integration of the two Koreas would eventually lead to a nation with a GDP that could be on a par with, or in excess of, that of most G-7 countries by 2050.

What Investors Should Watch

The companies that will be on the forefront of any liberalization of North Korea will naturally be from South Korea. Therefore, one way to play this trade would be to invest in the equities of South Korean companies, especially those that already have ties with the North.  The Korean Exchange’s benchmark KOPSI index settled the day down 3.43% on news of Kim Jong Il’s death as investors fled in panic. Now could be a great entry point to get in on any long-term growth potential with the North. Hyundai, for example, which operates in North Korea, fell as much as 10% today.

South Koreans are largely against a German-style rapid reunification with its neighbors to the north as the living standards between the two Koreas are so vastly different. Gradual liberalization of trade, which would allow North Korea’s living standards to rise gradually, may be the best way for the peninsula to finally rip down the walls and come together.

Cyrus Sanati is a frelance financial journalist whose work has appeared in dozens of leading publications, including The New York Times, BreakingViews.com, and WSJ.com. Follow Cyrus on Twitter @csanati

Europe may be thousands of miles away, but its debt troubles weigh heavily on US markets. Remember the uproar that ensued when the U.S. lost its coveted AAA- credit rating this August? Well, watch out: credit-rating agency Standard and Poor’s decided last night to put 15 of the 17 European countries that share the euro currency on “negative credit watch” (financial speak for “50-50 chance we’ll downgrade you soon”). But does the credit crisis in Europe mean anything for investors here at home? You bet.

You might have noticed the value of your 401K or mutual fund bouncing up and down more than usual. (In September and October you probably saw it fall hard, only to see it rally in November.) You can thank the troubles in Europe for a large part of this volatility. Even portfolios with few European holdings may see wild swings, since uncertainty in Europe feeds into doubts about much of the world’s economy.

Europe’s Got Issues

It’s no secret Europe has a debt problem. Several of the nations that share the euro currency have rung up tons of debt in the last few years. It’s a simple problem, really: they don’t earn enough money (through taxes) to cover their expenses. Take Italy, for example: Its debt of 1.9 trillion Euros is equal to 120% of all the goods and services it produces in a year! Investors are nervous that the Italians might one day just give up and default on their loans, so they are requiring them to pay more in interest to borrow money. But that just makes things even harder for Italy, since higher interest rates make it harder to pay down the debt — and that makes it even likelier that they’ll default. Ouch.

Standard and Poor’s (S&P for short) is one of three major credit rating agencies who assign a risk level of the bonds issued by a country or company, creating a rating score(AAA is the highest score, representing the lowest risk). The higher the rating, the lower the interest rate paid. It is just like your credit score: You will normally pay less interest on your credit card if you have an 800 vs 600. (Have you updated your credit score on Mint.com yet?)

Yesterday, S&P threatened to lower the credit ratings of 15 out of the 17 members of the eurozone (the other two members, Greece and Cyprus, are already in trouble).  S&P wants the eurozone to come together to solve the structural problems with the common currency. If they don’t, then everyone will suffer. So even countries like Germany and the Netherlands, which have a relatively manageable debt load, could now stand to lose their AAA rating – something that the market hadn’t anticipated.

European Contagion?

Stock and bond markets around the world are more interconnected today than ever before. There is a fear that an S&P downgrade could cause investors to abandon the European debt market, which would not bode well for the continent. If the Europeans fail to solve their problems, the common currency could collapse, throwing Europe into recession — which would have repercussions here at home. For example, companies in the US that do business in Europe could see their orders dry up, forcing them to lay off workers. That could start a chain reaction, eventually pushing our economy into the dumps!

News of the potential downgrade caused stock markets in Asia and Europe to fall this morning. Here at home, stocks opened lower. While the fundamentals of those companies haven’t changed, the market fears that a possible recession could wipe out their future earnings. That means your stocks are probably down today. If you have a mutual fund, chances are it is down today because a lot of mutual funds invest only in stocks. If you invest in electronically traded funds (ETFs) to get some exposure to the hot commodity market, you too are seeing red.

S&P will be watching what happens at a critical meeting of European leaders scheduled for this Friday in Brussels. If S&P is happy with the solutions the Europeans come up with, they will leave the ratings alone. But if the Europeans fail to live up to their expectations, they’ll likely be downgraded. If you want to know where your stocks are headed in coming weeks, you might want to brush up on your French.

Cyrus Sanati is a frelance financial journalist whose work has appeared in dozens of leading publications, including The New York Times, BreakingViews.com, and WSJ.com. Follow Cyrus on Twitter @csanati

Retirement planning is all about The Number. So much emphasis is placed on amassing the right number of dollars for retirement that there was a bestselling book on the subject a few years ago called, you guessed it, The Number.

Here’s the problem with that approach. You can calculate your number down to the penny, but how do you get there? Let’s say I’m five years away from retirement. (I wish!) I invest in a diversified portfolio of stocks and bonds in my 401(k), and I’m saving aggressively. How much money am I going to have in five years?

Who knows? The answer is in the hands of the stock and bond markets. I can increase my chance of hitting my goal by saving more, but how much more? Five years isn’t a long time: I could easily end up with less money than I started with, even using a relatively conservative portfolio.

Is there another way to approach the retirement savings problem? This isn’t an ivory-tower question. For most of us, retirement saving is like a runaway project at work: you can be 90% of the way there and have no idea how long that last 10% is going to take. It’s like trying to walk from Seattle to New York, blindfolded. Can I get a compass?

“Okay,” you might say. “If market fluctuations make retirement planning so hard, let’s take the Invisible Hand out of the equation by investing in low-risk bonds or insurance products.” I am sympathetic to this idea, have written about it before, and will talk to one of its passionate defenders in a moment. But damn, have you looked at treasury bond rates lately? As I write this, you can lock up your money for 30 years and get a real (inflation-adjusted) return of 0.77%. That is the very definition of a hard sell.

Another way

Wade Pfau, a professor of economics at National Graduate Institute for Policy Studies in Tokyo, came up with a different approach and published it in the Journal of Financial Planning.

It’s not a new method of retirement savings: it relies on a diversified stock-and-bond portfolio like you probably already have. It’s a compass for your journey through the investment wilderness: a way of checking your progress without having to make a prediction about future market performance—a prediction that will certainly be wrong. I’m going to explain how it works, but feel free to skip ahead to where I link to a simple table where you can check your own progress.

What Pfau realized is: the market goes up, then it goes down. And vice versa. (Yes, this doesn’t seem like much of a eureka moment, but bear with me.)

Take the case of someone who retired in 1982. Lucky bastard: 1982 was the beginning of one of the biggest, longest bull markets in US history, and our guy can spend freely. But 1982 was also the end of one of the worst bear markets in history. That means our retiree had to save and save and save in order to be able to retire in 1982.

“Sure, the 1982 retiree has a high withdrawal rate, but this isn’t fair because it would have been tough to save enough to retire in 1982,” says Pfau.

So he fused together the ideas of savings rate and withdrawal rate. We start with a data set of market performance from 1871 to 2009. Then we invent a hypothetical retiree. Let’s call her Jane. We know Jane’s age, how much she has saved so far (in terms of a multiple of her salary), how much of her salary she needs to replace from her savings in retirement, and how much she is saving now (again, as a percentage of her salary).

Now we can use Pfau’s tables to ask: What if Jane were saving and retiring at the worst possible time in recorded investment history? At what age could she have retired?

You’re probably lost at this point, so let’s fill Jane out with some actual numbers, Ms. Potato Head-style. Let’s say she’s 55, needs to replace 70% of her salary in retirement, has already saved eight times her salary, and is currently saving 15% of her gross pay. According to the table, Jane could have retired at 68. What if she bumps her savings up to 20%? That knocks five years off her retirement date.

Here are the tables for savers age 35, 45, 50, and 60. (The tables for age 55 are in the original article.)

A dissenting view

The problem with taking a historical perspective, of course, is that the 1000-year storm could hit at any time, and Pfau admits as much in the paper. “Indeed, there is an important caveat that these ‘safe’ strategies are only what would have worked in the worst-case scenario from the past,” he writes. “Future retirees may experience even worse market conditions, and this must always be kept in mind.”

That’s not good enough, says Zvi Bodie, professor of management at Boston University and author of the forthcoming book Risk Less and Prosper. “This is an extreme case of what is called hindsight bias,” says Bodie, who advocates investing your baseline retirement money in low-risk assets. “It’s true he’s never seen a truly disastrous period of security returns in the US. But he sure has hell has seen it in Japan.” (The Japanese stock market is famous for hitting a high of nearly 40,000 in 1989 and then slumping to a small fraction thereof ever since.)

Again, Pfau freely admits this. “In the future we could have a worst worst-case scenario. A black swan,” he says.

Here comes the judge

I’m going to referee this debate. As I said, I’m sympathetic to Bodie’s view that we can achieve more certainty in our retirement planning by investing in safe assets, and to a significant extent, I follow this approach myself.

But it’s an approach few investors are likely to sign up for at the moment, when bond yields are at all-time lows, no matter how good an idea it is. Most people I know invest in a mixture of riskier and safer assets and hope for the best.

For them, Pfau’s tables can’t tell you for sure whether your retirement savings is on track—there’s always that pesky black swan to worry about. But they can tell you if you’re off track. If you’re 35, haven’t saved anything for retirement yet, and need a 50% replacement rate in retirement, you’d better be saving at least 15% of your salary if you’re planning to retire by 66—and that doesn’t take into account investment fees and expenses, emergencies, periods of unemployment, and the like.

Better make it 20%.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

Unfortunately, only about half of the workforce participates in employer-sponsored retirement plans according to a 2008 study published in the Academy of Accounting and Financial Studies Journal. Not surprisingly, working households tend to focus more on day-to-day expenses rather than retirement during a tough economic environment. Luckily, these problems can be avoided or eased, even in a turbulent market environment. Here are seven investment vehicles to help.

Fixed Annuities
Investors fleeing a volatile stock market should take interest in a fixed annuity. These annuities boomed when the stock market took a beating toward the end of 2000, causing sales in the first quarter of 2001 to surge. Seven years later, they gained popularity during one of the worst recessionary periods ever; sales estimated for fixed annuities were at $107 billion in 2008, up 60% from 2007, according to Beacon Research Fixed Annuity Premium Study. (These contracts provide a guaranteed income stream. Learn how they work and their benefits, check out An Overview Of Annuities.)

An investor may put in a lump sum and lock in a fixed interest rate of 4-10% for a period of time - typically between five and 10 years. Annuities provide either immediate or deferred payments. They can occur for set number of years or until death. The money is tax deferred, and the principal and interest are guaranteed. Generally, the payout has been 5% of the principal each year.

It’s important that investors stay attentive to “teaser rates” because once they end, the rate is reset depending on market conditions.

Variable Annuities
As the market begins to stabilize, investors tend to focus on a different annuity: variable annuities. This investment vehicle allows people to pick from a group of investments, such as mutual funds, stocks and bonds. Investors’ rate of return varies as a result. The lump sum of money invested can be moved between investment portfolios inside the annuity to take advantage of a strong stock market or preserve gains.

Keep in mind that with annuities, some withdrawals prior to the age of 59 and half can result in a 10% tax penalty and a surrender fee. Also, once payments are received, interest is taxed. In addition, these annuities aren’t guaranteed by government agencies. Whether you choose a fixed or variable annuity, plan for the situation that best fits your needs.

Target Date Funds
Target date funds are geared toward people who have a distinct retirement date in mind. Investors put their money into a diverse mixture of stocks and fixed-income securities. The fund manager automatically shifts away from riskier investments to more conservative investments as the target date approaches.

Assets held in these funds have grown in popularity since these funds emerged in the mid-1990s. This led to their designation as a qualified default investment alternative, which made them very common in 401(k) plans.

However, the funds were hit hard during the 2008 recession. Their unpredictable performance led to significant losses, which varied based upon how the assets were allocated. The average loss for funds with the target date of 2010 was nearly 25%. (These accounts will take charge of your retirement savings, but should you let them? See The Pros And Cons Of Target-Date Funds.)

When it comes to target-date funds,  investors aren’t always well aware of the risks and differences among the funds. The way the funds are marketed has also become a contentious issue.

Despite the potential volatility of these funds, target date funds are still considered a growth industry and many experts are working to make more, and better, disclosures.

TIPS
Investors, especially those on fixed incomes, turned to Treasury inflation protected securities, also known as TIPS, to hedge against inflation that may occur upon an economic recovery. The Treasury-issued bonds, with terms of five, 10 or 20 years, protect against rising prices and the future payout rate. TIPS adjust with the Consumer Price Index, which affects both the principal and the interest payments. A fixed interest rate is applied to the principal. As a result, the interest rate payment and principal increase with the rise in the index or with inflation, and fall with deflation or a drop in the index. The amount of principal that investors receive when TIPS mature will depend on whether the adjusted principal or original principal is greater.

Investors will need to consider the timing with this tool. It’s often difficult to determine when inflation or deflation will occur.

TIPS ETFs
TIPS exchange-traded funds (ETFs) are a basket of TIPS bonds compiled into a portfolio. Most TIPS ETFs last between eight and 10 years. PIMCO 1-5 Year U.S. TIPS Index Fund (ARCA:STPZ) offers immediate protection against inflation. Based on historical trends, TIPS with a short maturities have seen a higher correlation with inflation;  lower volatility is associated with indexes that follow the entire TIPS maturity spectrum. The products are domestic; however, one can buy into TIPS securities in developed foreign countries and emerging markets. This will expose investors to various currencies and provide some diversification from the dollar.

Stable Value Funds
Stable value funds are considered safe options when the market is volatile. They have generally made up one-fifth of assets in 401(k) plans.

Money is invested in a high-quality fixed income portfolio that includes U.S. government and agency bonds, corporate bonds and mortgages, and asset backed securities. (Find out how weighted average life guards against prepayment risk in The Risks Of Mortgage-Backed Securities.)

Contracts with banks and insurance companies protect these funds against volatile interest rates. They have a market and a book value unlike some other funds. They are also protected up to the amount of their book value by these “wrap” contracts. Wraps make sure investors receive the fund’s book value even if the market value drops.

Caution is needed when selecting these investment vehicles as critics have pointed out that investors are not always aware of what these instruments include or how they are built.

Dividend-Paying Stocks
Dividends are a steady source of income for investors in good markets, and limit the downside risk during down markets because their incomes (although not guaranteed) can remain positive whether price returns are good or bad.

The companies offering them are usually financially sound. Stable and increasing dividends can demonstrate the confidence of managers in their firms’ prospects. Investors tend to agree. (Seven words that are music to investors’ ears? “The dividend check is in the mail.”

Dividend yields were at their highest levels in 2008, and offered higher yields than 10-year Treasury notes. Lowered taxes on dividends made them even more appealing. It’s important to review the history of dividend payments from the companies when seeking out these investments.

The Bottom Line
An unstable economy may derail retirement goals but investors can get back on track by selecting some conservative approaches. Also, investors should educate themselves about how the investment was structured, its historical performance and the organization offering the investment vehicle. The more you know, the better a decision you can make and that’s the best way to keep your retirement savings safe.

Hey, want to sock away some money and earn 3.83% interest over the next 12 months? That’s better than the rate on online savings accounts (about 1%) and 1-year CDs (1.2% at best). It’s even better than the rate on 5-year CDs.

Furthermore, unlike savings accounts and CDs, the financial instrument I’m talking about is guaranteed to keep up with inflation, and you can hold it for up to 30 years. You’ll never pay state or local income tax on it, and don’t have to pay federal tax until you cash it in.

This is real, risk-free, and not a scam; there are almost no catches. You can and should do it today, because that guaranteed 3.83% rate expires at the end of October.

I Bonds Revisited

I’m talking about Series I US Savings Bonds–“I-bonds” for short. (No, they’re not an Apple product.) At a time when complaining about low interest rates is our national pastime, few people know about these bonds. The Treasury has no budget for advertising savings bonds, so you have to hear about them from fans like me. They’re the financial equivalent of an unsigned indie rock band, except that savings bonds have been around forever and will never be featured in Pitchfork.

“It’s a product designed for Main Street, not Wall Street and the banking industry,” writes Chris Farrell in Kiplinger’s. That’s exactly it: only individuals can buy savings bonds. If I-bonds were a club, Goldman Sachs wouldn’t make it past the velvet rope.

Buying savings bonds has a reputation for being complicated, so I’m going to tell you exactly how and why to do it. I’m buying some today; you should, too.

How They Work

I-bonds are like certificates of deposit. You put money in, it grows in value, and at some point you cash it out and spend the money.

You can’t cash out an I-bond until its first birthday, so don’t put in any money you might need in the next year. If you cash it out in less than five years, you pay a small penalty: you give up the most recent three months of interest payments.

Unlike a CD, an I-bond has a variable interest rate tied to the rate of inflation. If you buy an I-bond before October 31, it will pay 4.6% APY for six months and then 3.06% APY for the following six months (3.83% is the average of the two rates). After that, the interest rate will change again: it changes every six months and could go higher or lower, but it will never be less than the inflation rate.

To put it simply: if you buy a $1,000 I-bond (which has a picture of Einstein on it) today, it will be worth $1038.30 in a year. Again, that’s by far the best you can do in a risk-free investment today.

Each person can buy up to $10,000 worth of I-bonds this year. The limit drops to $5000 starting in 2012.

How to Buy

The easiest way to buy I-bonds is to mail-order them, Sears Roebuck style. (Yes, my jokes are as venerable as savings bonds themselves.)

Just fill out this form, print it, and mail it with a check. This will probably be the only time in your life you write a check to the Federal Reserve Bank of Minneapolis. They’ll mail you the bonds in a couple of weeks. As long as your check arrives by October 31, you’ll get the current, delicious interest rates.

If you can only afford to put $5000 or less ($10,000 for a couple) in I-bonds right now, stop reading, submit your order, and relax with a beverage knowing you’ve joined a secret society of expert savers.

Because here’s where it gets complicated. You can buy up to $5000 in paper bonds (that’s what you’ll get via mail order) and another $5000 in electronic bonds. To buy electronic bonds you have to sign up for an account with TreasuryDirect, the government’s direct bond sales web site. It’s similar to signing up for online banking, but the security measures are Iron Curtain-inspired.

Starting next year, you won’t be able to buy paper bonds any more, so if you want to keep buying I-bonds, you’ll have to sign up for TreasuryDirect, in any case.

The Take-Home

I-bonds are the perfect savings tool for short- to medium-term savings goals: down payment, vacation, college tuition (if you use I-bonds to pay for college, you can cash them in tax-free). The fact that you can’t cash them in for a year protects you from impulse buys. They grow tax-deferred. They never lose purchasing power due to inflation.

Nobody regrets buying I-bonds. If you have money sitting around earning 1% or less, pick some up today.

Welcome to the club. Let’s work on a secret handshake.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

It seemed like a good deed at the time.

Back in March, I helped my sister-in-law, Wendy, set up her first Roth IRA. She knew I was keen on retirement saving, and she asked why a Roth IRA was any better than a savings account. I explained that an IRA offered a tax advantage—you never pay taxes on money withdrawn from a Roth after age 59.5—plus you could invest in assets like stocks and bonds that would likely outperform a savings account over time.

Sounded good to her, I guess, because I convinced her to take $5000 from her savings account and put it into a Roth IRA. She chose a socially responsible investing fund specializing in large US companies. I figured this was fine to start, since the most important variable at this point is her savings rate.

Naturally, I patted myself on the back for helping a young person take that scary first step into investing for retirement. Oh, and I told her not to check her balance every day, because investors who peek a lot tend to make impulsive moves. She followed this advice diligently and didn’t check until this month, when she sent me an email:

“I happened to look at my money when I was on the site changing my address. Why am I supposed to put more in there when I have actually lost almost a thousand dollars in just a few months?”

Oops. Wendy knew perfectly well that investments fluctuate, but I failed to explain—if this can even be explained—that there’s a big difference between reading a book about investing and actually seeing your own money disappear.

So, Wendy, the rest of this column is for you. I’m going to try to convince you that not only is it normal for your investments to take a dive sometimes, it’s actually good news.

Fall in love with a bear (market)

The day Wendy sent that email was the day the S&P 500 hit bear market territory: down 20% from its most recent high. That evening, I turned on my favorite financial podcast, NPR’s Planet Money, and heard reporter Jacob Goldstein say this:

“In the long run, the decline may be good news for a lot of ordinary people: steady, long-term investors who contribute part of every paycheck to a 401(k), and who aren’t planning to retire anytime soon. The bear market means that something you buy every month — stocks — just got a lot cheaper. And every dollar you sock away in your retirement fund today gets you a bigger share of all those future profits.”

Now, I know this sounds like a pitch from a stockbroker. “Don’t worry about that money I lost last month. Send me more money!” But Goldstein is no Wall Street apologist. He’s right, and I’d like to try and show why.

Let’s run some numbers. Say I have $100 a month to invest. Here are two things the market might do in 2012:

Which would you rather see? The first one, right? Your money steadily grows, and the market is up 11% at the end of the year—a good year for stocks. You put in $1200 over the course of the year and end up with $1264 at the end. Not bad at all.

But if you’re contributing every month, like most people, the stomach-churning Bumpy Ride graph is actually better news. For most of the year, you get to buy “on sale.” This time, our $100/month investor ends up with $1529!

I have no idea what’s going to happen to the stock market next year; I made these performance charts up. But that “bumpy ride” graph sure looks a lot like actual stock market performance over the past three years. During this time, I kept contributing every month. (Yes, my wife and I were lucky enough to remain employed.) And my portfolio, which includes both stocks and bonds, returned an average of about 10% per year.

By “average,” I mean my portfolio went into the toilet in 2008-2009, and I had the opportunity to buy shares at toilet prices. In the last couple of months, I’ve been happy to get to do it again.

Some questions and answers

If I were Wendy, I would raise three objections to this argument.

How do we know stock prices are going to go back up? Couldn’t the Dow drop to 5000 and stay there until I retire?

Yes, it could. It hasn’t happened in US history—yet—but it did happen in Japan, where the Nikkei 225 hit nearly 40,000 in 1989 and currently sits below 10,000. This is a good argument for international diversification: investors who own only US stocks are taking unnecessary risk if we turn into Japan. (If this scenario involves soba noodles and sashimi, however, I’m okay with it.)

What if every stock market has lousy performance for the next 30 years? Unlikely but possible, and a good reason to own assets other than just stocks. More on that in a minute.

Why do I have to keep my money in stocks while the market is going down? Couldn’t I sell my stocks, stick that money back into a savings account, and buy back in when stocks are cheap?

That would be great, wouldn’t it? It’s called market timing, and the evidence is overwhelming that nobody can do it reliably. Vanguard published an amazing simulation that lets you decide when you’re going to get in and out of the market—and then shows you, in nearly every scenario, how much money you would have lost by playing this game.

As Larry Swedroe, author of the Wise Investing series, puts it, “There is never a green light that goes off to let you know it is safe to get back in.” Losing money some of the time is part of investing, period.

Okay, I get it, but watching 20% of my money disappear is just too painful.

So own a hearty serving of bonds in addition to your stocks. “Even when you’re young, it’s okay to invest more conservatively,” says Tim Maurer, a certified financial planner and coauthor of the new book The Ultimate Financial Plan. “If your personality is such that if you put $5000 in the Roth and it goes down 20% in three months, and that is going to freak you out, there’s absolutely nothing wrong with adjusting your strategy.”

As a young investor, the best way to do this is to choose the mutual fund equivalent of high-water pants: a target-date retirement fund (TDF) designed for people older than you. TDFs hold a diversified mix of US stocks, international stocks, and bonds, so you don’t have to juggle or meet the minimum balances for multiple funds. As the fund gets closer to the target date, it holds more bonds and becomes less risky.

For example, say you’re 30 and hope to retire in 2046. Instead of choosing a 2045 target-date fund, which probably holds 90% stocks, it would be absolutely fine to choose, say, a 2020 fund holding 65% stocks. The fund company isn’t going to card you, and people on the street can’t see your mutual fund choices—unlike your pants.

Last week I sat down with a friend to help him establish his first Roth IRA. Right off the bat, I warned him that investments go up and down. “Uh, yeah, I know that,” he replied. But next time the market takes a dive, I expect to get the email anyway.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

Ok, ok, so maybe choosing a broker isn’t quite so easy. Between online, discount and full service brokers, the decision can get a little complicated. But by following our decision tree, the path to finding the right broker may suddenly seem clearer. Click on the image above to expand the infographic.

A question I almost never get asked: “How much should I save per month?”

For most people, the second question is, oh, ten times as important as the first one. I’m going to explain why in words and then in pictures.

In words, here’s the answer. Every month, some money is added to (or subtracted from) your account due to factors beyond your control. Your stocks go up or down. A bond fund pays a dividend. In short, market stuff happens. Also every month, you add some money to your account.

If the amount of money you add is bigger than the effect of the market stuff, then your savings rate is more important than your investment performance. If the market drops and you lose $200, but your monthly contribution is $1000, then your balance at the end of the month is still $800 higher than it had been.

At some point in life, if you’re lucky and diligent, you get to the point where the monthly fluctuations in your investments dwarf the new money coming in. But it takes surprisingly long for this to happen, as demonstrated by a beautifully simple graph created by Chartered Financial Analyst, Rick Ferri of Portfolio Solutions.

This graph, as explained by Ferri on his blog, represents two people who work at the same steady job with exactly the same pay. One saves 5% and earns 10% annual returns. The other saves 10% and earns 5% annual returns. It takes over 25 years for the one with the awesome 10% return to come out ahead.

There are two key lessons here, says Ferri. One is: on your first day of work, save 10% of your gross pay and keep doing so forever. “Mathematically, if you work for 45 years starting at age 20 and you save 10%, then it gives you the number that you need to retire on comfortably,” he says.

The second lesson: if you hit the middle of your career and are still making stupid investment mistakes like market timing, day trading, and performance chasing, cut it out. “Some time in your early 40s, you need to have gotten all the bad stuff out of your system,” says Ferri. “You need to have learned how to diversify, how to keep your costs low.”

We’re all Generation Y now

But how many people do you know who started saving for retirement at age 20 and haven’t been unemployed, or taken a 401(k) loan, or gone off to India in search of themselves, before they hit age 45? In their 2011 retirement confidence survey, the Employee Benefit Research Institute found that 70 percent of Americans believe they are “a little” or “a lot” behind schedule.

In other words, regardless of our age, most of us are more like the 20-year-old on Ferri’s chart than the 45-year-old. The best thing we can do to increase our retirement nest egg is to (snooze alert) save more and spend less.

That’s what Carl Richards told me as well. Richards is a certified financial planner and author of the forthcoming book The Behavior Gap. I asked for his take, and rather than respond in prose, he sent me this original sketch:

(My sister-in-law thought it was hysterical. I don’t see why.)

Don’t get me wrong. Investment choices are important, especially once you’ve accumulated a sizable chunk of savings. I like helping people choose their investments, and I enjoy checking my own spreadsheet to see how close I am to my goals and whether I need to rebalance. Investing is fun, scary, and mysterious; saving more money, well, that’s boring at best, and painful at worst.

And that’s exactly why it’s so important—for me as much as anyone—to listen to what Ferri and Richards are saying.

The silver lining of saving more

Last question: is it better for your 401(k) balance to go up because you’re saving more or because your investments are performing well? Or does it matter?

It matters. Improving your balance by saving more is better. Once you retire, you’ll be using your savings to pay expenses. The lower your expenses before retirement, the easier it will be to cover them from your nest egg. And when your savings rate goes up, your expenses (as a percentage of your pay) have to go down, right?

Maybe the secret of a comfortable retirement isn’t about savings rate or investment performance: it’s about redefining “comfortable.” Oh, and ignoring your brother-in-law.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

Okay, okay — so maybe we’re not actually going to show you what’s inside the iconic investor’s house. But in the infographic above, you can take a peek at what’s in his investment portfolio. The Berkshire Hathaway investment guru has holdings in some companies you know well(ExxonMobil and Kraft, for example) and some you may have never heard of(Garan Co.). Click on the preview above to expand the infographic and check out just what the House of Buffett holds.

Somewhere in Mt. Pleasant, North Carolina, a guy is using my money to build a swimming pool at his house.

I know this because I lent him $25 through Lending Club, a site where ordinary people lend money to (and borrow money from) other ordinary people. Like other peer lending sites such as Prosper, Lending Club promises big returns (over 9.5% on average, after taking fees and defaults into account) if you’re on the lending side, and lower-than-credit-card rates on the borrowing side. The service currently has $18o million in outstanding loans to over 27,000 borrowers.

Since my landlord told me I’m not allowed to build a swimming pool in my apartment, I’m going to focus on the lending side of Lending Club. If you have some money to invest, should you hand it over, via Lending Club, to random people around the country who need a loan?

It takes about five minutes to sign up for Lending Club and a couple of business days to transfer money electronically from a checking account. Then you can browse “notes,” which are like bonds: they’re pieces of a loan. My swimming pool guy is also borrowing money from 310 other Lending Club users for a total of $15,000. Lending Club gives each note a rating. A-rated notes are the least likely to default and pay the lowest interest. G-rated loans are extremely risky and pay very high interest. Swimming pool guy is rated A5 and pays 7.66%. (So far, he’s on time with his first payment to me: 77 cents.)

The stereotype about peer lending is that you’re giving money to deadbeats who can’t get a loan elsewhere. That’s not the case here. “We’re not lending to everyone,” says Lending Club’s Rob Garcia. “We’re only lending to the top of the top of the credit spectrum.” Nine out of ten loan applications are denied as they make their way through a rigorous underwriting process.

Lending Club is not for everyone on the investing side, either. Investors are required to affirm that they have a net worth of $70,000 and gross income of $70,000, or a net worth of $250,000—not counting home equity. (These qualifications are waived if you want to invest less than $2,500.) There is a good reason for these qualifications, which I’ll explain in a minute.

If you’re investing a large sum of money with Lending Club, you can and should diversify by splitting it among dozens or hundreds of notes. The web site offers a tool for allocating your cash; you don’t have to select each note manually.

Which is nice, because browsing Lending Club notes is a little depressing. The majority are people seeking a debt consolidation loan to get out of credit card trouble. Meanwhile, my swimming pool guy reports a gross monthly income of over $12,000 but is borrowing $15,000 to build a swimming pool. Why? I don’t even want to know. Another guy wants to borrow $20,000, for 60 months, at over 20% interest, to buy an engagement ring. I’m crying, and not tears of joy for the happy couple.

Of course, getting despondent over the poor financial habits of Americans after reading Lending Club notes is like going to your local emergency room and concluding that everyone in your neighborhood is bleeding.

It’s not a savings account

When you put your money into a bank savings account, the bank turns around and loans it out to other customers. If you’re lucky, the bank will pay you 1% interest for the use of your money. Lending Club investors typically make a lot more than that. Why? There are three reasons.

1. Lending Club uses technology to lower costs. If you want to borrow money with Lending Club, you don’t have to sit down at a desk across from a banker. You submit your information, undergo a credit check and underwriting, and if you’re approved, people like me can start throwing money at you.

2. You’re taking all the risk. Lending Club is not FDIC-insured, and you can lose money. If my borrower goes bankrupt halfway through the construction of his swimming pool, I take a bath. I mean, figuratively. And swimming pool guy is one of their A-rated best bets.

3. Lending Club ties up your money in a way banks and mutual funds don’t.

This last point is important, and it’s the reason Lending Club only accepts relatively affluent investors: if you put money into Lending Club, you can’t necessarily get it out except by waiting for the loans to be repaid. “There’s a very good reason why these investments should be only for the rich,” writes Reuters finance blogger Felix Salmon, “and it has nothing to do with them being a high-risk gamble. Instead, it’s all about liquidity. If you lend someone money for three years, your money is essentially out of reach for three years.”

Furthermore, Lending Club recommends investing at least $20,000 across 800 notes for maximum diversification. Few financial advisors would recommend investing more than 10% of your portfolio in high-yield debt, which implies that Lending Club’s perfect customer has a portfolio of at least $200,000.

Lending Club offers a trading platform to sell notes before maturity, but it’s not like selling a bond, where the security is priced daily and your broker will be happy to take it off your hands for a set fee. You might have to sell your note at a steep discount, especially if interest rates have gone up since the loan was originated. ”If you price your notes at par value or at a discount, you can get rid of them within a few days,” says Garcia.

I put my swimming pool note up for sale at its par value. It’s a current, highly-rated loan. Two days later, no one has taken it off my hands. (It typically takes about 5-1/2 days to sell a note at par, according to Lending Club.)

Is Lending Club for you?

In order to make Lending Club part of your portfolio, you need to know more than just how risky it is in isolation. You want to know how it works alongside other asset classes, like stocks and bonds. And that information isn’t forthcoming, because notes are hard to trade and aren’t priced daily. We can make a guess, though, that Lending Club notes perform similarly to high-yield bonds (aka junk bonds). The popular SPDR Lehman High-Yield Bond ETF (JNK) yields about 8%—comparable to Lending Club—and you can sell out of it anytime.

Lending Club, however, has a lot to recommend it. It represents the good kind of financial innovation, and the underlying assets aren’t incomprehensible derivatives; they’re just plain vanilla loans.

Even if you use its AutoInvest tool, Lending Club demands that you get your hands dirty in a way that mutual fund investing doesn’t. And that’s exactly what some investors are looking for. A person who enjoys day-trading stocks or currencies—fantastically effective ways to lose money—might well find it just as fun but far more lucrative to select Lending Club notes.

(One more thing: Lending Club notes should be held in an IRA or Roth IRA if possible, because they’re tax-inefficient: unlike capital gains or qualified dividends on a stock, their interest is taxed at higher ordinary income rates.)

I hope Swimming Pool Guy is out back right now with a shovel, and I wish him three years of Speedos, suntans, and on-time payments.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

For information about becoming a Lending Club borrower, click here. To learn more about being a Lending Club investor, click here (sponsored).