MIDYEAR INVESTMENT REVIEW : Where to Put Your Money Now : Strategy: Following several simple rules can help narrow down the choices for a successful investment plan.

In the few years since her husband died, 67-year-old Louise Smith has learned a thing or two about investing.

Forced to deal with financial questions that she had long ignored, she’s finding that managing a portfolio of securities can actually be fun--even with the unexpected ups and downs along the way.

She made a nice profit on shares of Quantum Corp., a computer parts maker. She’s found attractive interest rates on mutual funds that buy relatively short-term corporate bonds. And she’s learned to look a little more closely at the quality of her municipal bonds.

Still, Smith admits, the goal of plotting a cohesive strategy has so far eluded her. “A strategy is something I’m still looking for,” says the Claremont resident.

Among individual investors, that’s a common refrain. Buffetted by wild market swings and confused by the vast array of investments available, many individuals find themselves unable to focus on how best to manage their money. The result often is investment “drift” into the wrong products, or no decisions at all.

Yet for most people, their financial needs at any given point in life boil down to a few simple statements of fact. If you can simplify the questions you should be asking yourself, the answers should become simplified as well.

What follows are three statements that describe the basic concerns of investors and would-be investors across a broad spectrum of age groups and wealth. After each statement is a capsulized look at some strategies for approaching and solving the problem, as suggested by investment professionals and experienced individual investors.

- I have no stocks. For many individuals in their 30s and 40s, no financial issue is as big a worry as this one. Most people know that, over the long term, no investment pays off as well as stocks. But the decision to invest still seems incredibly difficult. So it’s put off--even though mutual funds make it easy to start with as little as $100.

Ruth Lavell began investing in her 40s. Now, 18 years later, the Los Angeles resident calls the stock market “the greatest game in town. . . . Over any period of time, nothing is going to do as well as stocks,” she insists.

What Lavell and other long-term market players have learned is that stocks are simply the best way to participate in the economy’s growth--something you can’t get from a bank CD or even a bond. As companies expand and their sales and earnings rise over time, their stocks rise as well. It doesn’t always work that way, of course--but it’s worked well enough that the Dow Jones industrial average has increased nearly 100-fold since the 1930s, from 32.00 to 2,906.75 now.

While stocks are most crucial for younger investors who can take a truly long-term view, even older investors know that there’s no substitute for the payoff the market provides. Phil Copeland, a 70-year-old Palos Verdes investor, still keeps 60% of his portfolio in stocks. “I intend to live to a ripe old age,” Copeland says, and he has found that stock growth is the best protection against ever-present inflation.

How do you get started? Most people go with mutual funds, which let you participate in a diversified portfolio for a small investment. If you have no clue where to begin with the funds, here’s a simple idea: Talk to friends or co-workers who invest, and find out which funds they use. Chances are they’ll be happy to talk about their experiences.

For beginners, one of the most comprehensive guides is the Directory of Mutual Funds, available from the funds’ trade group, the Investment Company Institute. The cost is just $5. Write: 1991 Directory of Mutual Funds, Investment Company Institute, 1600 M St. N.W., Suite 600, Washington, D.C. 20036.

Novice investors also may find the local chapter of the American Assn. of Individual Investors helpful. For information about this 13-year-old group, write AAII, P.O. Box 854, Santa Monica, Calif. 90406.

- I don’t know how to manage my stocks. Even experienced investors often express this lament. Once invested in stocks, it’s easy to find yourself buying and selling without really having a game plan. It becomes easier to chase each “hot trend”--or panic at the first major market downturn--rather than follow a well-thought-out strategy. A good broker can keep you from hurting yourself in this way, but brokers themselves often are guilty of lack of focus.

There’s a simple solution, experts say: Never buy a stock or stock mutual fund without also knowing when you’d sell it. That is the No. 1 rule espoused by legendary Wall Street trader Vic Sperandeo, author of the just-published book, “Trader Vic: Methods of a Wall Street Master.”

Before you buy, ask yourself, Is the stock a long-term investment? Do you just want to make 20% or so and get out? Would you be willing to buy more if the price dropped 10%, or would you dump it? What if it dropped 30%?

If you force yourself to address these issues before you buy, says Sperandeo, you will avoid what he terms your “biggest enemy” as a trader or investor: confusion.

Another good rule, say veteran investors, is to admit that you can’t be a genius on every aspect of the stock market. Investor Copeland, for example, decided long ago that picking individual small-company stocks wasn’t his game. He did fine with blue-chip companies that had well-defined businesses, but with emerging companies, he says, “I think I’m too far from an expert to play that game.”

His solution has been to leave small-stock picking to professionals. So he invests in the Milwaukee-based Nicholas Fund and Nicholas II Fund, which have had excellent long-term records picking growth stocks.

Finally, Sperandeo also addresses the issue of diversification. How many stock investments are too many? For someone who actively trades, Sperandeo believes that more than 10 stocks is too many, because it’s too difficult for most individuals to monitor more than that.

Long-term investors may feel comfortable with a wider array of stocks, however, especially if they’re using mutual funds. The key is, if you’ve begun to lose track of what you own, you probably need to refocus.

- I need more income. This is the most basic investment concern of most older investors, who need to supplement retirement benefits. It also may be the concern of younger investors who need to supplement their salary to pay for living expenses.

The frustration for both groups now is that short-term bank interest rates have fallen so low--to 6% or so for the average one-year bank CD. Many people got used to rolling-over short-term CDs in the 1980s without even thinking about it. Now, millions of savers and investors are struggling with a major decision: Should they move their money into longer-term investments, such as bonds, to earn 7%, 8% or more?

There’s a fairly simple answer, experts say: Before you invest directly in bonds, or in bond mutual funds, look at the term involved, and ask yourself if you’d be comfortable locking your money into a bank CD of the same term.

If you’re tempted to buy a five-year Treasury note, for example, would you put money into a five-year CD at the same attractive yield? The question is important because, even though a bond investment can be sold, you’re still locking into a set interest rate. If market rates are higher two years from now, your five-year note won’t look nearly as appealing. You have to decide if you can take that risk.

It’s the same with bond mutual funds: Before you invest, ask the fund for the average maturity of the bonds in the portfolio. And think about that number as a CD term.

The best strategy for most individuals, say experts, is to avoid trying to forecast interest rates. Even the professionals rarely get that right, so why waste your time? Rather, the smarter approach is to do what investor Louise Smith has done--”ladder” your income investments. For example, she has purchased different municipal bonds, each maturing at various times all the way to the year 2010. The longer-term bonds pay more, the shorter-term bonds less.

By parceling your money among CDs or bonds of varying terms, you’ll always have something maturing and available for reinvestment at current market rates, whatever they may be. You’ll probably earn more in the long run, and you’ll keep yourself interested as you go along.

One final tip: If you’re young and you don’t need extra income, just ignore bonds--you don’t need them. You’d just have to pay taxes on the interest each year, when you could instead be letting your money grow, tax-deferred, in stocks--which are more fun to pick and monitor anyway.

Making Money in the Long Haul

Over the long-term, stocks have beaten almost all other investments. Here’s a look at average annualized returns over the past 20 years for 13 investment categories, plus inflation as measured by the consumer price index.

20-year avg. annual return Foreign currencies 4.49% Silver 4.99% Farmland 6.25% INFLATION 6.29% Housing 7.27% Treasury bills 8.62% Oil 8.85% Bonds 9.35% Stamps 10.03% Diamonds 10.46% Gold 11.50% Chinese ceramics 11.59% Stocks 11.65% Old Masters paintings 12.32%

Note: Data for period ended June 1. Source: Salomon Bros.