OUR ADVICE about risk and investment has been pretty consistent: Take as much risk as you can stand — and maybe a little more — to build your wealth and meet your financial goals. It's plainly more risky to let your savings waste away in the bank than to aggressively pursue growth, especially if you're young. After all, the average annualized yield on a taxable money-market account hovers around less than 1.5%, while a 3% CD turns into a negligible investment after inflation is factored in. Well, when it comes to short-term financial goals, you can forget about all that. If you're thinking about sending your kid off to college in the next couple of years or buying your first home, you have to be more cautious. It's one thing to look at a 10% drop in the market and hope that it's just a temporary pothole on the road to an early retirement 20 years from now. It's another thing entirely to watch your tech fund implode and realize that Junior might not go to Princeton after all. That's why it's important to take a two-pronged approach to your investing. Money you need over the long term, say, for retirement, should generally be invested aggressively, knowing that the hits you'll take here and there will almost certainly be made up for by the market's long-term growth. But money that you will need to tap into over the next two or three years should be invested much more deliberately, much more cautiously. (One clue: These investments shouldn't require 2 a.m. checks on the closing price of that day's Nikkei.) Caution, however, is not the same as misguided panic. Sure, you could guard against market losses by throwing your savings into a money-market account or CD. But you run the risk of settling for returns that barely keep pace with inflation. Our short-term investing recommendations squeeze as much return as possible from the universe of so-called safe investments. We encourage you to look at things like Treasury strips and loan-participation funds — steady investments that won't expose you to too much short-term risk. Our short-term strategy begins with a couple of interactive worksheets — tools to help you set your savings goals and assess just how much risk you should be taking to generate the amount of money you need. We also suggest specific investments to meet your recommended allocation. When you're done, you should be set up with a safe — but not too safe — program to help you meet your short-term target.

If you're thinking about sending your kid off to college in the next couple of years or buying your first home, you have to be more cautious.