Though the average plan offers 12 fund choices, the typical participant holds only 3.3 funds in their 401(k), a recent Hewitt Associates study shows. Enron employees recently learned the danger of investing too heavily in company stock. Thousands lost their retirement savings when the company's share price plunged. The employees had funneled their money into Enron's shares, in addition to receiving company matches in Enron stock.

Before deciding how to allocate 401(k) funds, employees should determine an appropriate asset allocation. This depends on time until retirement, contribution levels and retirement goals. Several Web sites, including morningstar.com and fidelity.com, offer asset allocating tools. Guidance also is available in financial planning books.

Advice.com in Manhattan. If an investor wants to allocate 75 percent of savings in equities, he or she should not load up the retirement plan with stock. If there's a great bond fund in a 401(k), the employee should buy lots of it and not hold bonds outside the plan.