In building a house, you start with a frame.
That same rule applies to a well-designed retirement portfolio.
"At the heart of your plan, you want to have solid, well-managed common stocks," says Thomas O'Hara, chairman of the National Association of Investors Corp. in Madison Heights, Mich.
For mutual-fund investors, that means one or more "core" holdings, from which to build other investments that can spice up performance or reduce risk.
At the core, many experts say, should be funds that focus on the stocks of large, blue-chip companies based in the United States.
These stocks are considered safer than small-company or foreign equities. But unlike an ultrasafe money-market fund, they should beat inflation by a wide margin, crucial for most retirement strategies.
A typical core holding: a is a growth-and-income fund.
Growth-and-income funds invest in stocks that promise both growth (share price) and income (quarterly dividends).
These funds typically hold many of the large companies in the Standard & Poor's 500 stock index.
An increasingly popular core holding, in fact, is an S&P 500 index fund.
Index funds buy and hold the companies in an index, such as the S&P 500, mirroring its moves.
Some people might use an index fund as their only core holding. Others use a fund where stocks are more actively traded by the fund manager, or one of each.
Whatever you choose, there's another key decision: How big should the core be?
Experts vary, but many asset-allocation models devote one-third to half your portfolio to large-company US stocks.