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We start this discussion with a quote from James Bryant Conant, American diplomat:

Behold the turtle. He makes progress only when he sticks his neck out.

Pretty Foolish, James. He knew that cracks along the sidewalk would trip up the turtle from time to time. But the one who finds a comfortable pace and keeps his eye on the horizon will go places.

In our investing analogy, those cracks represent market risk. And in our Foolish Steps to Retirement Planning we recognize that we're going to have to cross them to get anywhere.

Market risk (the chance you will lose money) and reward (the chance that your investments will head skyward) travel hand-in-hand in the daily marketplace. The greater the risk, the greater will be the potential return for taking that risk. Equally true is the potential for loss, which quite handily explains why taking that risk should pay a greater reward. By and large, however, risk is pretty much a short-term phenomenon. That's particularly true in the stock market, which many regard as a quite risky investment.

Let's take a look at what various investments have returned over time.

Since 1926, U.S. Treasury Bills, which serve as a pretty efficient proxy for money market accounts, have yielded roughly 3.8% annually on average as of December 31, 2000, according to Ibbotson Associates. While this may not seem like a lot today, remember that for much of this century, inflation was nonexistent, making a 3.8% average return very attractive until the 1960s. Had you put one dollar into T-Bills in 1926, you would have amassed $16.40 as of December 31, 2000.

Long-term government bonds have returned around 5.3% per year since 1926. The best 10-year holding period for bonds since then was that ending on December 31, 1991, when bonds returned 15.56% annually. The worst was that ending on December 31, 1959, when bonds had a negative return of 0.07% per year. Had you invested one dollar in long-term bonds in 1926, you would have $48.10 as of December 31, 2000.

Stocks have also been very good to investors. The Standard & Poor's 500, composed of 500 international corporations, has returned an average of 11.1% per year since 1926 -- quite a bit higher than bonds. Surprisingly, the range of the returns for stocks is not that much larger than the range for bonds over the same period. The worst 10-year holding period was that ending on December 31, 1938 when stocks declined 0.89% per year, including dividends. The best 10-year holding period for stocks since 1926 was that ending on December 31, 1958, when stocks increased by 20.06% annually. Had you put one dollar into stocks in 1926, you would have seen it rise to $2,682.59 as of December 31, 2000.

Fools recognize that the long-term odds are overwhelmingly in our favor. We know the market shifts everyday, sometimes sharply downward. That can be absolutely gut wrenching when it occurs, but history shows us that the inexorable pressure on the stock market is upward. The biggest bang for our buck will be found in stocks.

Fools opt for stocks above all else as our vehicle of choice for growth over the long term.

Think now about your retirement. When will it occur -- 20 years from now, five years, tomorrow? If you're close to it, or are already retired, how long must the money last? Now think about your retirement investments. Is the bulk of your money positioned for long-term growth (read: stocks) or short-term stability and income (read: bonds and bills)? The mix you have in these instruments is something you must decide for yourself. After all, you're the one that has to sleep at night. Recognize, though, that investing for retirement is a long-term goal. Hence, you truly want to shoot for the best growth in your investments that you can get. That won't be found in bonds or bills over the long haul. If you elect to keep most of your money there, almost assuredly in retirement you will be eating franks and beans for dinner because you have to, not because you want to.

Recognize, too, that you probably still have many years of productive life ahead of you after you finally do retire. While bonds and bills may appear appealing for the income and safety they provide, half or more of your portfolio must still be invested for growth to ensure you can maintain purchasing power. Average inflation for the 10-year period ending December 31, 2000, has been 2.71% per year. At that rate, the cost of all we buy doubles every 26 years. To a retiree living on a fixed income, that can be nothing short of devastating. Hence the need for growth in a retiree's portfolio.

The lesson of this step, then, is to avoid overly conservative investing, both now and after you retire. Too much safety can be costly to your financial health in retirement. If you are a mutual fund investor (and most 401(k) or 403(b) plan participants are), focus your attention on stock funds. Compare their records over time to that of the S&P 500 index and each other. For 5- and 10-year periods, most funds will be below the market. In a company plan, though, you won't have much choice. Use the fund that comes closest to the S&P 500 average. If your plan offers a stock index fund, that will probably be your best choice. Outside of a company plan, an S&P 500 index fund invariably is better than a managed stock fund for the long haul. If your company plan allows you to purchase your own securities or if you are investing outside of a plan, you have many more options. Other Foolish investment strategies are covered in the Fool's School. All are worth your investigation and time.

Next up: A look at what your contribution to Social Security means to you in Step 6.

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