If we assume that you have at least 20 years until retirement and that your retirement will last twenty to thirty years (that is, you'll live for twenty to thirty years after retirement) you have 40 to 50 years to recover from the inevitable dips and sags to which most investments are subject. That gives you more flexibility in choosing investments.

For shorter term investing, you can take too much risk and ultimately not have the money you need because your investments tanked. With retirement savings - don't go crazy here - the strategy is almost the opposite. You need to take enough risk to get enough return that you'll be able to live off of your savings for a long, long time. Frankly, FDIC insured CDs are not going to cut it.

Before going further, please understand that if you cannot sleep at night knowing that your portfolio could be worth less tomorrow than it was today, keep your CDs. Just be sure to save more - much more than your neighbors who can stomach a little risk.

Consider the following guidelines for retirement investing:

Diversification is key

It is wisest to use mutual funds as the primary investment vehicle for your retirement savings. Each fund is, within its objective, reasonably diversified, but each fund has a goal. If you were to rely on one fund for all of your retirement savings, you may be concentrating too much risk on one fund manager. You'll probably be better off with five to ten different funds, remembering that by the time you retire you could easily accumulate $100,000 in each one. Managing more than ten may not add any effective diversification - just complication.

Choose a growth equity fund

A growth equity fund invests in stocks that are expected to grow faster than the market. They don't always work. These funds tend to appreciate quickly -when the markets do well - and fall quickly when they don't. Over the long haul you'd expect your growth fund to perform best.

Chose a value fund

A value fund is one that invests in stocks that, based on the fund manager's judgment, are undervalued in the market and are expected to rise based less on performance than on market correction. These funds don't swing in value as much as growth funds, but they do go up and down.

Choose a long term corporate bond fund

If you are aggressive, you may even want to consider a "high yield" bond fund that invests in junk bonds. Junk bonds are debts owed by companies expected to have difficulty paying. The yields on these bonds are significantly higher, but losses are not unusual. "Investment grade" bond funds can still lose value due to both credit risk (risk that the issuer defaults) and interest rate risk (the risk that the bond price drops because interest rates rose) but swings are smaller.

Choose an intermediate term government bond fund

The intermediate term government bond fund invests in Federal Treasury and Agency bonds with maturities less than 10 years. These funds have virtually no credit risk and relatively modest interest rate risk, so should provide consistent, though modest returns.

Choose a fifth fund to match your age or appetite

You can now choose a fifth fund to skew your portfolio in the direction that makes you most comfortable. If you are risk tolerant and sleep well knowing your funds go up and down in value, you may want to invest in a risky fund to help increase the yield in your portfolio. There are a variety of specialty funds that make concentrated investments in industries, regions and countries. These funds often beat the market one year and trail it dramatically the next. On the other hand, if you are not risk tolerant or are closer to retirement, you may want to make your final fund a short term government bond fund that invests in bonds with maturities of less than four years so there is very little interest rate risk and virtually no credit risk.

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