(MONEY Magazine) – WELCOME TO A FRESH FINANCIAL ERA, THE decade of the new investor. Consider: -- Since Jan. 1, 1990, the proportion of American households that own stocks either directly or through mutual funds has grown nearly a fifth (from 32% to 37.5%), the highest level in history. -- Buoyed by first-timers, last year a record $136 billion went into stock mutual funds, up from a previous high of $82 billion in 1992 and more than during the entire 1980s. -- Fund behemoth Fidelity, as well as the nation's largest discount brokerage firm, Charles Schwab, estimate that stock market virgins now account for as much as a third of their new business. Suddenly, millions of people like 29-year-old Michael Ebert and 28-year-old Susan Ebert of Phoenix (pictured at right), who had never invested in stocks or stock funds before, have dipped into the market. It's easy to see why: Over the past three years, domestic equities have returned nearly 16% annually, with some global mutual funds zooming 40% a year. "Rates of return like that will turn anyone's head," says John Markese, president of the American Association of Individual Investors. But fabulous returns -- at least until the recent market plunge -- are not the only reason for the investing boom. With CD returns low and retirement benefits shrinking, people are being driven by need as well as greed. Participation in company 401(k) plans has given many of them a measure of market experience, and the growth of the mutual fund industry has made stocks more accessible to them on their own than ever before. Who are these folks? After interviewing more than three dozen financial planners, analysts, marketers and researchers, Money has identified four predominant groups of fledgling investors: The Young Bloods (people in their twenties and early thirties); The Bank Dropouts (bank customers fed up with puny CD returns); The Lump-sum Crowd (laid-off or retired workers with sizable lump-sum payouts) and The Ethnic Entrants (minorities who have customarily shunned the market). What follows is a closer look at the new investors and the advice our financial experts have for them. Chances are, no matter how experienced you are as an investor, you'll profit from the tips.

Financially speaking, THE YOUNG BLOODS are finding that reality truly does bite: They are earning 20% less on average than those their age a generation ago. They are faced with a slow-growth economy. And they are aware that, with changing priorities in national politics and business, they cannot rely on traditional safety nets such as Social Security and corporate pension plans for their financial security. As a result, they're trying to shun debt and to invest for the future. Their goal: self-sufficiency. "I have clients who are 29 and feel guilty because they haven't started saving for retirement," says Eileen Sharkey, a Denver financial planner. "I've never seen that in my 18 years in the business." The advice for The Young Bloods: Learn the ABCs. A $49 membership in the American Association of Individual Investors (312-280-0170) gets you its monthly journal containing advice for novices and access to 50 chapters around the country that sponsor seminars for beginners. Among the books that can help you get started are The Mutual Fund Buyer's Guide by Norman Fosback (Probus, $17.95) and The Intelligent Investor by Benjamin Graham (HarperCollins, $30). ! Push to invest as much as you can as early as you can. Historically, stocks have returned an average of 10% a year. If you're 24, now earn $25,000 a year and start squirreling away 10% of your gross income in the market, you could easily greet your 65th birthday with a stash worth over $1.8 million. Go for growth. With decades ahead to ride out market blips and dips, you should have an aggressive growth plan. Financial planner Ron Roge of Centereach, N.Y. recommends choosing solid growth funds with no up-front fees, such as Strong Discovery (12-month return to March 1: 23.8%; 800-368-1030) and Kaufmann Fund (up 28.6%; 800-237-0132). One of THE BANK DROPOUTS, Norma Roberts, 57, of Laguna Hills, Calif. (above), is a grandmother of six who began managing her own finances only after her 1989 divorce. Explaining her decision to test stocks, Roberts says: "I had no choice. I couldn't stand by and watch my money dwindle away in 3% CDs." She is hardly alone. From 1991 through 1993, the banking system lost an astounding $256 billion just to mutual funds; roughly a quarter of recent first-time fund buyers have made their purchases with money from CDs and bank accounts. Many of them, like Roberts, are older investors -- folks whose Depression-era parents taught them about the value of a buck and the sanctity of banks. As a result, they are unaccustomed to taking risks with their money, and they can be naive about the possibility of losing principal in stocks and stock funds. In a phone survey last year, for example, the American Association of Retired Persons asked 1,000 people if mutual funds sold at banks were federally insured; 40% incorrectly answered yes. (For more about bank-sold products, see Money Monitor on page 40.) The advice for these investors: Invest gradually. Carl Camp, an adviser with Eclectic Associates, a fee-only financial planning firm in Fullerton, Calif., recommends that once you feel comfortable with market risks, start transferring a set amount each month from the bank into a stock fund. Known as dollar-cost averaging, this strategy lets you buy more shares when prices are low and fewer when prices are high. To ease edginess about plunging into the stock market, Camp recommends you dollar-cost average over six to 18 months. Tilt your portfolio toward growth and income. Total-return funds, which seek steady returns from a combination of price appreciation and dividends, generally provide skittish investors with a gentler ride than do growth funds. Camp favors Neuberger & Berman Guardian (no load; up 14.2% over the past year; recent yield: 1.6%; 800-877-9700) and Fidelity Equity Income II (no load; up 16.9%; recent yield: 2.3%; 800-544-8888). You might also pepper the mix with bargain stocks boasting solid dividend growth. Gregory Weiss, associate editor of the Investment Quality Trends newsletter, likes Bristol-Myers Squibb (traded on the New York Stock Exchange; recent price: $53; 5.5% yield) and Allegheny Power (NYSE; $24; 6.9% yield). As you move away from CDs, says Camp, you might invest as much as 50% of your assets in these types of funds and dividend-paying stocks and put the rest in safe intermediate-term Treasury notes. They are now yielding 5.5% to 6.5%; you can buy them in $1,000 increments from the Federal Reserve, their member banks or brokerages. Steve Martin, 51 (pictured on page 85), joined THE LUMP-SUM CROWD last January when he lost his accounting job at Breyer's Ice Cream in Charlotte, N.C. and walked away with $170,000 from his 401(k) plan. "I used to be antistock," says Martin, who is living off severance pay and earnings from part-time work. "Now I appreciate what long-term growth can do." Millions of other Americans are taking their lumps too; according to the American Management Association, half of the 7,000 major companies in its organization sliced an average of 10% from their ranks in 1993 and are expected to cut another 10% this year. Many of these people still need years of growth from their money before retirement. Experts suggest these moves: Learn, then earn. "People spend more time buying a refrigerator than they spend researching how they'll invest their lump-sum distributions," says David Bugen, a Morristown, N.J. financial planner. He suggests that you park your nest egg in a money-market account for several months while you learn about the stock market. If you got a large chunk of your company's stock, dump it. "Keeping more than 10% of your life savings in any one company is dangerous," cautions Glen Clemans, a financial planner with Pearson Financial Group in Portland, Ore. You should go for growth too. Since you've probably got 10 or more years before drawing on your savings, plan on keeping fully 60% of your portfolio in equities. Clemans suggests investing 80% of your equity money in moderate-risk growth funds like Scudder Growth & Income (no load; up 15.6% for the past year; 800-225-2470) and the other 20% evenly split between international funds such as T. Rowe Price International Stock (no load; up 41.7%; 800-638-5660) and aggressive growth funds like Invesco Dynamics (no load; up 28.2%; 800-525-8085).Studies show that in rising markets, if you are committed to investing a specific sum in stocks, you will do best over the long run by putting it all into the market as soon as you have it. But if, like the bank dropouts, you tend to be edgy about moving too fast, you can use the dollar- averaging strategy recommended for them. The first person in his family ever to buy stocks, Houston's Jesse Tyson (shown on page 88), a manager in business services at Exxon, is in THE ETHNIC ENTRANTS group of new investors. A 40-year-old African American, Tyson is representative of people within the black, Hispanic and Asian communities who have just begun to look to the stock market as a place to boost their wealth. "For years, minorities weren't investing because no one was giving them guidance," says Cheryl Broussard, a financial adviser in Oakland and author of The Black Woman's Guide to Financial Independence (Hyde Park Publishing, $19.95). "There was a perception that 'this isn't for me.'" Today financial firms are scrambling to find people who haven't invested before. Says Neal Litvack, executive vice president of marketing at Fidelity Investments: "Ethnics are an example of that." According to Gary Berman of Market Segment Research, minorities -- with increasingly middle-class incomes that produced $580 billion in purchasing power last year -- are among the fastest-growing target groups for financial services companies. Still, in 1993, just 15% of Asian Americans owned stocks or funds, trailed by 13% of blacks and 3% of Hispanics, according to Miami-based Market Segment Research. Studies have shown that, traditionally, many minorities have had difficulty getting fair financial treatment in a range of areas, from car purchases to mortgages. Moving into the stock market can understandably raise issues of trust. The best strategy is to vigilantly follow the advice MONEY's experts recommend for all new investors: Pick your advisers carefully. There are plenty of brokers and financial planners who would like to manage your money for a fee. How can you judge whether an adviser's suggestions are best suited to your wallet, not his or hers? "Ask lots of questions," says Broussard. For example: "What types of products do you sell the most?" (Be wary if the answer is high-commission products like annuities or limited partnerships.) "Who is your typical client?" (The profile shouldn't be too far off from yours.) "What type of commissions, if any, will you earn from my investments?" (If you are being offered a plan that is packed exclusively with commission-based products, flee.) If you're hiring a financial planner, ask to see copies of plans he or she wrote for other clients. It's okay if the planner wants to block out the names of the clients to protect their privacy. But if you can't get sample plans to find out what kind of advice the adviser provides, find another pro. Make sure that you and your adviser agree on your goals in advance, then be sure you're on track to reach them. In a year's time, see whether your investments have done as well as the planner or broker expected. If not, look for a new adviser. Above all, says planner David Bugen, don't rush into any investment until you're completely comfortable with it. "There's no such thing as the last train in town," he says. "If you don't understand it, don't buy it."