A Suggestion For Your 401-k/IRA Money

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The vast majority of money in 401-k type plans, and IRA’s is used to gamble in either Stocks (equities) or Bonds, mostly in the U.S. I use the word GAMBLE quite deliberately.

However,  most people have no choice as the plan administrators only permit these options. You can choose from a small range of Mutual Funds or, more rarely, a Self Directed Option. This means you are investing in individual companies and a good part of your money goes on trading commissions. Always remember that you pay the same commission on a bad trade as on a good one, but you have given up all control of how and when they will be made.

Given this, the challenge is how to make the best selection from the limited options available.

Here’s a little snippet of historical data that might give a reason for my preference:

For the past 30 years (1978-2008) the U.S. Stock Market has undergone 4 different Bear Markets (a loss of at least 20% in the S&P 500 index). Specifically these were 26%, 33%, 20%, and 49%.

Despite this the average return on an investment tied to the S&P 500 index over these 30 years has been 13%. (Source. BTN Research).

Given this record my suggestion is that where possible you put your retirement savings into the fund that most closely tracks this index. My favourite is found here http://www.google.com/finance?q=MUTF:VFINX

Of course, if you can find a Mutual Fund (either Stocks or Bonds) which has done this good over a similar time then go for it.

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