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Greetings, MJOKRUSE, and welcome. You wrote:

<<I have a couple questions on 401k's. First, what is the difference between Cummulative Returns versus Average Annual Returns?>>

Cumulative return measures the total rate of return over a specific period. If you start with $100 and it grows to $1000 over five years, your gain of $900 represents a cumulative return of 900% over that five years. To get that $900, your initial deposit of $100 earned a compunded average annual return of 58.5% per year.

<<Second, how many funds does a person really need to invest in to gain diversification? I have roughly $85,000 invested evenly with Fidelity's Agressive Growth, Contrafund, and Magellan. There is some overlap in the investments of these three funds and wonder if I'm over diversified.>>

That really depends on what you mean by diversification. When buying individual securities, many would argue that you achieve diversification in as few as 15 to 20 stocks when those shares are in different companies in different industries. A fund that holds many shares of many companies is by definition diversified (with the possible exception of sector funds). So in a fund, many would look at the investment style. What is the fund's objective and how does it invest to achieve that aim? Does that match your objective? The funds you've named all seek growth, but invest slightly differently to get there. One concentrates in small to mid-size companies, another in what it sees as undervalued or out-of-favor stocks, and the third in basically large company stocks. In that respect, you may also have diversification, but only you can decide that.

<<Third and finally, my wife's company has the same 401K administrator as my company does. However, her plan has many more funds available to her than mine. Is it best to invest in the same funds that I have available, or should we go a different route with her funds. Unfortunately, neither of us has an index fund available to invest in.>>

That's a personal decision you must make based on your long term objectives and your own thoughts on what diversification means to you. Her investments don't necessarily have to be different than yours if duplication indicates you will reach your ultimate objectives that much sooner or with a greater stash in retirement.

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