You know that if you want to retire someday, you need to invest. You also know that if you want to retire comfortably and aren't already rich, you need to invest a significant part of your nest egg in stocks. When you look at the cold, hard facts, the other options simply don't give you a reasonable chance of success.

After all, cash certainly isn't paying much these days. Even in a high-yield account, you're lucky to see 1.5%. Likewise, even long-term Treasury bonds will return less than 4.6%. But stocks, in spite of all their recent volatility, still have a long-run historical total return rate of around 9.8%.

You've got to grow just to stand still
That difference is important, because when you're investing for your retirement, you're not just fighting the clock. You're also fighting inflation and its long-term destruction of your money's purchasing power. What might look like a decent nest egg today might seem more like pocket change when you're ready to crack that nest egg open to cover your living expenses.

Thanks to the uphill battle you're fighting against inflation, it's not important that you invest in just any stocks, but in stocks with an excellent overall rate of return. If you'd like to retire with $1 million in today's dollars, you'll have to sock away the following amounts every month to get there with 3% inflation and the listed stock market returns.

to Go

4% Annual

6% Annual

8% Annual

10% Annual














































Of course, stocks are not risk-free assets. Their superior long-run return potential is only there because you're taking on a higher risk of losses. Investing all your money in one company's stock puts you at serious risk of winding up with the next Worldcom, Enron, or Bear Sterns -- and losing everything. And that's a place you certainly don't want to be.

Don't go it alone
To get the long-term benefits of stock ownership while minimizing your risk of catastrophic loss along the way, you need to diversify and own stock in multiple companies.

The easiest -- and usually cheapest -- way to do that is to buy a broad index fund that tracks the overall market, such as Vanguard's Total World Stock Fund (VT). With one purchase and a tiny 0.3% annual expense ratio, you get a basket of nearly 3,000 stocks, including these global titans:


Market Cap
(in Billions)

Home Country


Microsoft (Nasdaq: MSFT)


United States

Application Software



United Kingdom

Major Integrated Oil & Gas

Banco Santander (NYSE: STD)



Foreign Money Center Banks

BHP Billiton (NYSE: BHP)



Industrial Metals and Minerals

Novartis (NYSE: NVS)



Drug Manufacturers, Major

Toyota (NYSE: TM)



Auto Manufacturers, Major

Siemens (NYSE: SI)



Telecom Services, Foreign

Data from Yahoo! Finance.

Thanks to that broad diversification, you can get the benefits of owning stocks without having to worry too much about things like whether Toyota will survive its current brake crisis. After all, with around 3,000 worldwide companies in such a portfolio, the moves in any one business will tend to get dampened by the others.

Diversification fundamentals
What makes that particular mutual fund great for diversification is the fact that its pool of investments comes from the entire world. As Greece implodes and America determines whether it is recovering or on the verge of a double-dip recession, it's comforting to know a single investment can protect you from both individual company and country risk.

Yet even that fund doesn't get you perfect diversification. With its large-cap focus, it misses out on the great growth opportunities available only to smaller companies. Because it owns so many stocks, a superstar isn't going to make much of a difference in your portfolio. In addition, as a stock fund, you do lose some of the "ballast" that bonds provide against the typical volatility of stocks.

At the end of the day, the quality of your retirement depends on your having the money you need when you need it. That's why your investing strategy should consider the time you have available until you retire, the risks and tradeoffs you face, and the amount of money you can invest toward your future.

As you can tell, there are tradeoffs in any investing decision you make. At Motley Fool Rule Your Retirement, we can help you work through the pros and cons of the choices you have to make in order to get yourself successfully from here to retired. To see all the tools, techniques, and resources we make available to our members, click here to start your 30-day free trial. There's no obligation to subscribe.

At the time of publication, Fool contributor Chuck Saletta owned shares of Microsoft. Novartis is a Motley Fool Global Gains selection. Microsoft is a Motley Fool Inside Value pick. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool has a disclosure policy.