Many of us feel that because the money we're putting away for retirement is so crucial to our financial future, we should place it in conservative investments like bank CDs, money-market funds and bonds. Bad move. To build a nest egg large enough to see you through a retirement that may well last 30 years or longer, you'll probably need the long-term growth that stocks provide.

You've heard these stats before, but they bear repeating: over the past 70 years or so, stocks have posted a compound annual return of just over 11 percent, versus just over 5 percent annually for bonds. That means that to reach the exact same savings goal, you would have to save a lot more if you invested solely in bonds. But there's another reason to favor stocks: over many years, their returns have outpaced inflation by four to six percentage points a year, thus assuring that your retirement savings will grow not only in size but in purchasing power.

Given stocks' superior returns, some advisors recommend that investors whose retirement is still 20 or more years away put all their savings in stocks or stock funds. A 100 percent stock portfolio can give you some hair-raising short-term rides, however. In the 1973-74 bear market, for example, U.S. stocks lost 43 percent of their value and took three and a half years just to get back to even. Would you be able to avoid panicking and selling during such devastation? A more prudent course even for true long-term investors is to throw some bonds or bond funds into the mix. Putting 70 percent of your portfolio into stocks and 30 percent into bonds, for example, will let you enjoy most of the long-term growth stocks offer, but shelter your portfolio a bit during market meltdowns. To the extent you do invest in bonds, try to keep them in tax-deferred accounts such as your 401(k). This way, you can avoid paying tax on the interest bonds throw off until you withdraw that income during retirement.

There's no "correct" mix you must shoot for. The one you choose should reflect your tolerance for risk and need to draw money from your portfolio when you retire. If, for example, the income you'll get from pensions and other sources is so large that you will barely need to tap your retirement nest egg, then you can invest heavily in stocks your entire life. But most of us probably will be drawing on our retirement savings after leaving work. And since we won't easily be able to replete those savings from earnings if the market falls apart, we'll probably want to scale back our stock holdings as we near retirement. By the time you retire, for example, you might want to be at a 60 percent/40 percent stocks/bonds mix.

You may want to reduce your stockholdings even more later in life, but don't make the mistake, as some older investors do, of going 100 percent into bonds to boost current income. Why? Because the fixed-income payments generated by bonds can be ravaged by inflation. For example, a $300,000 portfolio of 10-year Treasury bonds would provide roughly $15,000 a year at recent interest rates of 5 percent or so. But if inflation averages just 3.2 percent over the next 15 years -- the average for this century -- the purchasing power of that 15 grand would fall nearly 40 percent. Considering that a 65-year-old man who doesn't smoke has a four-in-ten chance of living 25 more years to age 90 and a 10 percent shot of hitting 100, a bonds-only portfolio doesn't have the staying power most retirees require. So unless you want to run the risk of your money running down before you do, you'll probably want to keep at least 20 percent to 30 percent of your money in stocks no matter what your age.

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