Should I pay someone to manage my IRA?

(Money magazine) -- I'm retired and trying to decide whether I should pay an investment firm 1% to 1.5% of assets a year to manage my IRA or do it myself. One concern is that I have no investing experience. What do you think -- should I give it a try on my own? -- Jim H., Skiatook, Oklahoma

I understand your trepidation about going it alone. When you're bombarded daily with reports of economic problems around the globe and the stock market is careening like an out-of-control roller coaster, you can easily get the impression that investing is too dangerous for a neophyte.

But that's not necessarily the case. As long as you're willing to do a bit of research upfront, develop a simple but effective investing strategy and apply basic common sense, you should be perfectly capable of handling your IRA on your own.

In fact, you may even have an advantage over a pro in that you should be able to manage your stash at much less than half the cost an investment firm or other adviser would charge.

But how well you pull off this venture depends on how seriously you approach the job of managing your money and how diligently you follow through.

To increase your odds of success, I recommend following these five steps:

1. Get the lay of the investing land. As a newbie, you need to get a sense of how the financial world works. That's important, not because knowing more about the markets will enable you to capitalize on every twist and turn; that's unrealistic. Rather, you'll feel more comfortable and less likely to do something self-destructive if you understand why the markets often react in strange and frightening ways.

A good way to get up to speed is to check out our MONEY 101 section, where you'll find easy-to-understand tutorials on everything from the fundamentals of investing to the ins and outs of stocks, bonds and mutual funds to the all-important concept of asset allocation, or assembling a diverse group of investments that can work as a coherent whole.

2. Think portfolio, not individual investments. Most people think smart investing consists of snapping up whatever investments happen to be hottest at the moment. But investments at the top of the performance charts one year may be cellar dwellers the next.

The real key to investing success is building a portfolio of diverse investments that can generate solid gains when the stock market is thriving but don't get clobbered so badly during downturns that they decimate your retirement stash.

For an estimate of how different blends of stocks and bonds might perform over both the long- and short-term, go to T.Rowe Price's Asset Allocator tool.

3. Stick to index funds. When it comes to picking investments, you could sort through tens of thousands of stocks, bonds and funds in hopes of coming up with a few dozen that seem to offer a shot at decent long-term performance. Or you can take what I consider the more sensible route -- namely, buy a few broad index funds that effectively give you the entire stock or bond market in a single fund.

And I mean a few. Investing in just three index funds -- a total stock market index, a total bond market index and a total international stock market index (each of which you'll find in our MONEY 70 of recommended funds -- will give you a fully diversified portfolio of U.S. and foreign stocks, plus a wide spectrum of domestic bonds, including government and investment-grade corporate issues.

Aside from broad diversification, index funds have another appealing feature: they're cheap. You can easily find index funds that charge anywhere from 0.25% to 0.10% of assets a year. So right from the get-go you've got a huge cost advantage over hiring someone to manage your money.

Such an edge is helpful at any stage of investing since low expenses generally lead to higher returns. But shelling out less in fees is especially valuable during retirement as lower costs can significantly reduce your risk of running through your nest egg too soon.

4. Don't try to be slick. One of the biggest mistakes investors make is getting too fancy. In a vain attempt to boost returns, investors dart in and out of market sectors or throw money at whatever the Wall Street crowd is touting as the latest must-have investment.

You're better off keeping it simple. Once you've set a stocks-bonds blend that makes sense for you, don't change it except to rebalance back to it every year or perhaps to gradually increase your bond stake as you age.

And resist the urge to keep adding new investments to your portfolio in the name of improved performance or greater diversification. A basic stocks-bonds blend is fine for most people. Going beyond a basic mix makes it harder to manage your portfolio and could actually diminish, rather than enhance, performance.

5. Seek help if you need it. Managing your own money and seeking professional advice aren't mutually exclusive. Sometimes you may face an issue you're not comfortable handling on your own or you may simply want a second opinion on a decision you've made. In such cases, it makes perfect sense to consult a pro.

The problem is that most advisers aren't interested in working as a consultant. They want to manage your dough and collect an annual fee. There are, however, a handful of pros who are willing to work for a flat fee or on an hourly basis. By consulting with one of these advisers, you pay only for the specific advice you need, which you can then apply on your own.

Bottom line: Assuming you're willing to go about the task of managing your IRA in a disciplined and methodic manner, I think it's worth trying to fly solo. And if you find that despite your best efforts you end up with lackluster results, well, you can always go to plan B and hire an adviser to do the job for you.