Forget about saving your pennies for a financial adviser. And don't worry if you can't tell a hedge fund from a hedgehog.

Neither is required to get a good return on an investment, says Michael Edesess, author of "The Big Investment Lie: What Your Financial Adviser Doesn't Want You Know," who is also an economist and mathematician.

"You see these financial institutions with these glossy two page ads, and they imply that if you entrust you wealth to them, they will earn you a lot more money than you would on your own," he says. "This is just a big lie. They actually don't do any better in selecting investments than a taxi cab driver."

So how do we select the best investments? asap spoke to Edesess about how to be a smart investor.

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asap: Why should we avoid hiring a professional to help us with investing?

Edesess: The typical situation is that a large financial institution advertises, 'Come in and get your financial plan' or something like that. You go in and a financial plan is fine. Then they recommend investments and then they charge what people assume is a small fee for the service. But the fee is not small. In fact, it will take away about half or more of your earnings over time. So the advisers or managers wind up earning more than you do on your investments. This is something you can do your own.

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asap: But what if we are not financially savvy?

Edesess: You don't really have to know what a hedge fund is or an index fund. Knowing all that doesn't help you a bit because it's not going to give you a better return on your investment. I invest my own money, half in a total domestic market index fund (which invests in domestic companies) and half in an international market index fund. Those are broadly diversified and extremely low in cost. You can go to Web sites -- Vanguard, Fidelity Investments -- start up those two index funds. How much in one and how much in another is really a matter of choice. But by investing in both, you tend to damp the fluctuations a little bit.

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asap: How do we know which stocks in those funds to invest in?

Edesess: The fund invests in the stocks for you. Something that is misleading is if you go to a financial adviser or financial manager, they will say that you need several types of mutual funds in order to be well diversified. This is wrong. It doesn't really matter for diversification how many mutual funds you have. Each mutual fund is a way to package a bunch of stocks. So if you get several different mutual funds and they all have the same small number of stocks, it won't be well diversified. But if you get only one mutual fund that has all the stocks, that's as diversified as you can get.

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asap: Should we purchase stock with one company? Or is an index fund the best way to go?

Edesess: You want to buy more than one stock. Any one company can go bankrupt but the chances that all companies are going to go bankrupt are very low. Even if you bought the German stock market in 1940 before the war, it would have gone down 97 percent the next year. But if you held on to it, in 20 years, the German stock market actually did better than the British stock market and almost as well as the U.S. stock market. If you just wait it out, it does recover. If you diversify and go into a low cost mutual fund with lots of stock, that eliminates the risk.

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asap: How much should we start with?

Edesess: $50 a month. Suppose you invest $50 a month and you put it in the stock market in one of these low cost funds and you do that until you withdraw it in about 40 years. A conservative estimate of how much money you will have at the end of that time is $165,000. But if you go to one of these advisory folks and they say, 'Well we have to go through asset allocation and then we will recommend a fund for each of these categories that we have determined you have to allocate to according to our pie chart' and you pay them the typical fee, you'll have about $85,000.

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Megan Scott is an asap reporter.

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