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.

If you had invested $1,000,000 in the S&P 500 0n Jan 1st 1973 and withdrawn $100,000 per year (inflation adjusted) on Jan 1st of each following year you would have run out of money in 9 years!

Had you invested the same $1,000,000 on Jan 1st 1982 and made the same yearly $100,000 withdrawl you would have accumulated $4,500,000 by Dec 31st 2007.

How many of us are conceited enough to believe we would have avoided the 1st choice in 1973, AND chosen the same strategy in 1882?

The Stock Market is GAMBLING. That may be exciting but it’s not the smart way to accumulate the wealth we will all need in order to enjoy a comfortable retirement. It is most certainly not the place for the money you expect to live off for your last 30 years or so.

Source of Data was BTN Research http://www.behindthenumbers.com/

Any and all comments are welcome.