NEW YORK (CNN/Money) - I'm a 19-year old college student and I have saved about $25,000 from working over the past year. I know I want to open an IRA, but I really need some help figuring out how to invest my money. There are so many options! What should I do?

-- Anthos, Orland Park, Illinois

First, let me say your instincts are right on target. I love the fact that you've saved a nice chunk of your earnings rather than just blowing the entire wad on mp3 players, pizza parties, spring-break extravaganzas, etc.

And I also think you're absolutely right to fund an IRA. (Given the low tax bracket you're probably in, I think the Roth IRA is probably a better choice than a traditional deductible IRA, but you can click here for more on how to evaluate that decision.)

Consider this: if you put away the max allowable IRA contribution of $3,000 for the 2003 tax year (which you can do until April 15) and just sit back and let your contributions and its earnings ride, by the time you're 65 your three grand would be worth just over $103,000, assuming an 8 percent annual return.

And if you contribute the maximum allowable $3,000 in 2004, $4,000 in 2005 through 2007 and the maximum $5,000 in 2008 and every year thereafter, you'd have an account worth just over $2 million.

Actually, you could have much more since I haven't factored in the fact that future IRA maximum contributions are pegged to inflation, nor have I adjusted for catch-up increases you can make starting at age 50.

But the precise number isn't important. The principle is -- namely, by putting away small chunks of money early on in life you can end up with very large piles of money later on.

All right, so how should you invest your money so it can reap competitive returns that can turn your annual contributions into a sizeable nest egg over the years?

Since you're obviously confused by the array of options out there -- and, believe me, you're hardly alone -- I'm going to make this as simple as possible. In fact, I'm going to narrow it down to two investing options.

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Before I give you those options, though, I want to recommend that you put a portion of your $25,000 into a money-market account. You can decide on the exact amount, but I was thinking of $5,000 or so.

By doing this, you'll have a stash you can fall back on in case of emergencies and you won't have to disturb your other investments. That said, here are the two options I recommend.

Instead of trying to pick a mutual fund that might (repeat might) beat the market, I think most investors are better off with a fund that is the market.

By investing in a broad index fund, you are essentially getting a piece of all or most publicly traded stocks. History shows that over long periods index funds also tend to beat the majority of actively managed funds (that is, funds whose managers pick what they believe are the best stocks).

One reason index funds do so well is that it's very difficult to beat the market. Another reason, however, is that index funds generally have very low expenses, which means more of their return ends up in your pocket than would be the case with an actively managed fund.

There are many different types of index funds out there (and if you want to learn more about them, click here. But to keep it simple, I suggest you look for a broad-based stock index fund (that is, one that tracks either a total stock market index such as the Wilshire 5000 or a broad index like the Standard & Poor's 500) and a broad bond index fund (one that tracks an index like the Lehman Bros. Aggregate Bond index.

Someone your age should have most of his or her money in the stock index fund, but I think it pays to put a bit in a bond index fund as well just to hedge one's bets.

There's no stocks-bonds mix that's right for everyone, but I'd say something on the order of 90 percent stocks and 10 percent bonds would make sense for a person your age investing for the long-term. If turmoil in the stock market makes you really, really anxious, however, you can increase the bond portion to 20 percent or maybe even more.

Once you've decided on stocks-bonds mix with your two index funds, you can apply that mix to the money you invest inside your IRA money as well as to your investments outside the IRA (excluding your money-market reserve fund).

A life-cycle fund holds both stocks and bonds, but reduces your exposure to stock as you get older.

These funds can work in a variety of ways; the method I prefer is setting a target retirement date and then changing the stocks-bonds mix as that date draws closer.

So, for example, a life-cycle fund for someone in his or her 20s who intends to retire 40 or so years from now might start out with 90 percent in stocks and 10 percent in bonds today and then gradually shift so it has 60 percent stocks and 40 percent bonds after 20 years and, say, 35 percent stocks and 65 percent bonds after 40 years.

Thus, these funds relieve you not only of having to choose specific stocks and bonds, but also of having to decide how much to put in stocks vs. bonds.

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Several major fund firms, including Fidelity, T. Rowe Price and Vanguard offer these types of funds. If you want to go the life-cycle route, you can simply open separate accounts for your IRA and non-IRA assets.

As you get older and gain more experience, you may want to branch out to other types of funds, as well as incorporate other goals, such as buying a home and funding kids' college costs, into your investing strategy. But for now, I say keep it simple -- and keep socking that money away!

Walter Updegrave is a senior editor at MONEY Magazine and is the author of the new book, "We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World." He also answers viewers' questions on CNNfn's Money & Markets at 4:40 PM on Mondays.