The answer to your question depends almost entirely on how involved you want to be with your retirement fund. The index fund, after you select the correct one, will take less supervision and provide good diversification. Now your problem becomes which 500 Index to buy. There are two styles of S&P 500 Index Funds available, equal weighted and capitalization weighted. For sake of illustration, I'll use Exchange Traded Funds (which you may want to do due to their lower costs)or ETF's. The Guggenheim 500 Index (RSP) equal number of shares of each stock in the Index. The S&P 500 Cap weighted Index funds own, per share the same percentage of Apple as Apple's market value is to the total index. Thus, Apple and Amazon would make up more than 50% of your account. For the last several years, the equal weighted Index has appreciated more than the cap weighted by a wide margin. But they each owned the same stocks! The challenge for most investors is to know when to switch between the two. And, if you go far enough back in history, the PennCentral Railroad common shares were "blue chip" until the day the company filed for bankruptcy. That, in itself, would have destroyed 20% of the value of your funds almost overnight. There's a lot to be said for 500 issu diversification.
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