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The primary investment vehicles that will be involved in your retirement plans are your employer-sponsored 401(k), 403(b), or 457 plans; your self-directed IRA; and your taxable savings and investing accounts. In these vehicles, you'll have the following basic choices for your money.

• Money market funds
  
  
• Stable value accounts (guaranteed investment contracts (GICs) or bank deposit accounts)
  
  
• Bond mutual funds
  
  
• Stock (or equity) mutual funds
  
  
• Individual stocks and bonds
  
  
• Llamas

Kidding about that last one. Llamas are not offered as an investment vehicle under any 401(k) plans, nor are they available for purchase in any IRA. Not a reputable IRA anyway. Similarly, if your 401(k) is for any reason offering llamas (though they are surely the most majestic of the South American camelids), immediately consider instead working for a company run by people who are not certifiably insane. Now, back to our regularly scheduled programming.

Both money market funds and stable value accounts offer secure ways to make sure that your savings grow -- but only at a limited rate. You won't make much off any money put into these vehicles, but you don't stand much chance of losing any either, as they consist mainly of certificates of deposit or U.S. Treasury securities.

Bond mutual funds are pooled amounts of money invested in bonds. Bonds are IOUs, or debt, issued by companies or by governments. A purchaser of a bond is lending money to the issuer, and will usually collect some regular interest payments until the money is returned. Usually, the amount of interest paid -- the coupon -- is fixed at a set percentage of the amount invested; thus, bonds are called "fixed-income" investments. Historically, bonds have returned in the neighborhood of 5% per year.

Stock or equity mutual funds are pooled amounts of money that are invested in stocks. Stocks represent part ownership, or equity, in corporations, and the goal of stock ownership is to see the value of the companies increase over time. Historically, on average stocks have returned in the range of 11% per year.

There are also individual stocks and bonds to consider, though the methods for choosing those go beyond the scope of this seminar. (But hey! The good news is that we've got the better part of a very large website devoted full-time to analyzing businesses and to investing in individual stocks. As we'll see in a moment, you needn't acquire the knowledge of how to go about valuing companies to receive the benefits of the stock market.)

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Our Recommendation: Stocks »