Despite their popularity, evidence suggests that people often invest in ways that might leave them searching the sofa pillows for spare change when they retire. Experts pinpoint three main problems:

1. Gravitating to conservative investments. Many people continue to pour money in very conservative, low-yielding investments such as guaranteed investment contacts, or GICs. Under a GIC, sometimes called a stable value fund, an insurance company guarantees payment of a set rate of interest over a specified period of time.

According to a recent survey by Buck Consultants, a benefits consulting firm, 62 percent of companies offer some form of stable value fund as an investment option. At these companies, participants have an average of over 28 percent of assets invested there.

"Many people make the mistake of equating conservative investing with safe investing," says, Dee Lee, a Harvard, MA financial planner and author of The Complete Idiot’s Guide To 401(k) Plans (Macmillan). "But conservative investments often earn less, so you lose out over the long run to inflation."

Squeezing out just a couple of extra percentage points in return through more aggressive investing can make a big difference over time. Someone who contributes $100 a month to a 401(k) account earning 10 percent, for example, could expect to retire with $227,933 after 30 years. If the account earned 7 percent, the nest egg would grow to $122,709.

2. Being wedded to company stock. Many public companies match employee contributions with company stock. Individuals who work for such companies who also allocate much of their voluntary contributions to their employer’s shares can easily find the lion’s share of their 401(k) plan invested in their employer.

With the stock market bull blessing so many companies with good fortune over the last few years, some participants might feel satisfied with the strategy. But those who work for stock market laggards, such as Digital or Wang, probably don’t feel as fortunate. And loading up on employer shares could backfire if your company’s stock plunges into a prolonged downturn.

3. Lack of diversification. "People typically invest in just a couple of mutual fund options, regardless of the number of funds they have available to them," says Richard Koski, a principal with Buck Consultants. "And they rarely spread their choices across a broad spectrum of asset classes. The most common choices are typically a bond fund and a balanced fund, or a bond fund and an index fund."

Employees generally ignore investment options that are even a little out of the mainstream. International funds, for example, draw only six percent of 401(k) assets are at companies offering that option. . Emerging markets funds often attract much less than that.

"Companies have been criticized for not offering a variety of investment choices," says Koski. "But plan administrators often finds it too expensive and cumbersome to offer more exotic options, such as a commodities or emerging markets fund, when few people are likely to choose them anyway."

An Improving Picture

Avoiding such mistakes, and giving some thought to your 401(k) investment strategy, can a big difference in account growth over the long run. Fortunately, 401(k) investors have more opportunities than ever to assemble a well-rounded retirement portfolio.

Once skimpy investment menus have fattened. Employees have an average of eight 401(k) investment options to choose from, up from 6.3 in 1995 and 4.5 in 1993, says benefits consulting firm Hewitt Associates. While that may pale in comparison to the thousands of choices available to investors in IRAs or other non-employer retirement plans, it should be enough for most people to get the diversification they need.

The selection of investment choices varies widely from company to company. Most offer somewhere between five and nine options, which often include a GIC, money market fund, bond fund, employer stock, and one or more equity mutual funds.

Two fund options that have emerged recently that offer a broader universe of options are a mutual fund window and self-directed brokerage accounts. A mutual fund window provides access to all the funds in one or more mutual fund families. A self-directed brokerage account, similar to a mutual fund window, offers a selection of both mutual funds and individual stocks.

Flexibility has also increased. Nearly two-thirds of employers allow employees to transfer existing balances between investment funds on a daily basis, up from 41 percent in 1995.

If you’re looking for some kind of guidance on how to invest your plan, it’s easier to find today than it was three years ago . That guidance is far from comprehensive, though, and usually takes the form group seminars, or sample asset allocation and portfolio investing examples.

In the future, says Koski,, employees can expect investment assistance to become more available, and more personalized. Some companies have already hired outside advisory firms to counsel employees over the telephone about their investment options. Employers prefer that outsiders handle advisory work, he says, because they don’t want to become involved in the potentially litigious area of giving investment advice.

The Internet will also grow rapidly as an education tool. One service, the 401(k) Forum Inc. of San Francisco, contracts with companies to provide on-line access to investor education tools. The service, accessible through the employer’s intranet, solicits information about a user’s assets and tolerance for risk. It then provides an asset allocation recommendation for money both inside and outside of the 401(k) plan.

Allocating Your Assets

Even without such customized tools, investors can custom-build their own portfolios. Below, financial advisor Dee Lee provides some general asset allocation suggestions for investors with various risk profiles: