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My company offers a deferred compensation plan that offers several mutual fund options. What criteria should be used in determining the amount of compensation to defer, on an annual basis, and which funds should be selected - the options are pretty standard?

As far as how much to contribute, the Foolish thing is to put in at least whatever your company will match. (I have a deferred comp plan with the State of Florida, which generously matches absolutely nothing for me, so I don't have to worry about that.) After you've put in the maximum that your company will match, you need to look at your other options. If your marginal tax rate is 15%, I'd recommend fully funding a Roth IRA. If your tax rate is higher than 15%, it may be better to add more to your deferred comp, as you would essentially be able to invest 28% more. On the other hand, with a self-directed Roth you could probably beat your mutual fund returns, and over a long time period you may be able to make up that 28%.

As far as the mutual funds go, I'd agree with everyone else who's suggested index funds. S&P 500, with maybe some total market or small-cap index funds thrown in for diversity, if your plan offers them.

-john
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