Question: I’m 68, recently retired and have $250,000 to invest. I don’t know much about finances and I’m confused by all the information out there. I know I should diversify, but how do I determine where to put my money? –Grace, Yukon, Ohio

Answer: Well, you say you don’t know much about finances, but at least you know that you should diversify your $250,000 rather than plow it all into any one type of investment.

That’s a good start, especially given the precarious state of the financial markets today. People who went overboard on one asset class because it seemed like a sure thing just a couple years ago - real estate, financial stocks, whatever - are now paying the price, while people who take the same approach today with the hot investments du jour - gold and commodities come to mind - may end up paying the price tomorrow.

But as crucial as asset allocation is it’s still not as important as the factor you’re apparently overlooking: you.

That’s right, knowing all about building a well-balanced portfolio with different asset classes that work in concert with each other doesn’t mean anything if you haven’t first asked yourself what exactly you are trying to achieve by investing this money.

If this is an extra stash you probably won’t have to touch and will likely leave to your heirs, then you don’t have to worry so much about short-term losses and you may be able to invest more aggressively than is typical for someone your age.

If, on the other hand, you’re going to be drawing on this money for regular income to supplement Social Security, then you can’t afford to risk big setbacks because the combination of market losses and withdrawals can put a big dent in our portfolio’s value, raising the possibility that you could run through your two hundred and fifty grand too soon.

You’ve also got to take your emotional and psychological makeup into account. It’s one thing to say that you’re capable of riding out ups and downs in the market because you know that stocks usually generate the highest returns over the long run. But will you feel that way if the value of your holdings has dropped by 20% or 30%? Or at that point will you more likely be dumping everything you can and fleeing for the safety of CDs?

You can’t compensate too much on the side of safety, however, and just plow virtually all your money into CDs and money-market funds - unless you don’t mind the fact that the purchasing power of your money is likely to drop over the long-term after taxes and inflation.

I think that most people can sort through these issues and come up with a reasonable mix of assets that gives them enough upside potential to earn decent returns while maintaining sufficient downside protection against stomach-churning losses.

By answering a few simple questions about your risk tolerance, and how long you plan to have your money invested, for example, our Asset Allocator tool will suggest an appropriate mix of stocks and bonds. You can then go either to our Fund Screener or consult our Money 70 list of recommended mutual funds to find specific funds to fill that suggested mix.

If you’re going to be relying on your $250,000 for retirement income, I’d suggest you check out T. Rowe Price’s Retirement Income Calculator. You’ll get an estimate of how long your money is likely to last. You can then try different investment strategies and withdrawal rates to see whether your money lasts longer or goes sooner.

But, again, you’ve got to consider the “you” factor. If you feel overwhelmed when you start to deal with different investment alternatives or you’re just not confident about revving up calculators and the like, then you should probably get some professional help.

You’ve got several choices. You can hire a financial planner who can take a look at your overall situation, discuss your goals and come up with a plan. Typically, planners want an ongoing relationship, which means paying a certain percentage of your assets in fees each year (although some are willing to work on a flat-fee or hourly basis). Many large investment firms and mutual fund companies also give investment and planning advice these days.

Be careful, though. There are lots of people out there posing as advisers who are really peddling high-priced investment products or just looking to rip you off; $250,000 throws off more than enough scent to bring such opportunists and scam artists flocking to your door.

Whatever you do, don’t rush. Better to take some extra time and make a good decision that perhaps you could have made sooner than to move quickly and end up regretting that you did.