Many investors crave simplicity, preferring a single fund, a single stock, a single strategy that will provide financial bliss, safety and reliably.

Unfortunately, making your money work as hard as possible isn't quite that simple. But sometimes, simple is all you have.

The U.S. government offers its millions of employees a fairly simple menu of options in their retirement plan. Steve is 37, works for the Department of Labor and has contributed to the government Thrift Plan for 11 years.

He wants to know how to allocate his savings, now about $90,000, among his plan's five choices: the S&P 500 Index, the Wilshire 4500 Index, the Morgan Stanley Europe Australia Far East Index known as EAFE, the Lehman Brothers Aggregate Index and the Government Securities Fund.

Steve plans to contribute for another 20 years and wonders if he should follow his past practice of keeping all his savings in the S&P 500 Index.

The short answer is no. Steve will probably benefit from diversification, even though he doesn't have many choices.

We think Steve's situation calls for a 100 percent allocation to equity funds. He can skip the fixed-income choices for now and position his money to grow over time, as we believe it will despite the severe bear market of the past three years.

In the spirit of keeping everything simple, we'd recommend Steve divide his present balances three ways, investing equally among the Standard & Poor's 500 Index, the Wilshire 4500 Index and the EAFE Index. To do that, he'll sell two-thirds of what he has in the S&P 500 Index option (fortunately, that sale will be tax-free) and invest the proceeds equally in the other two.

If Steve had been in his plan only a year or so, he might do fine to simply funnel all his contributions into the two new funds, knowing that before too long his retirement fund would be properly balanced.

But because he already has $90,000 in the S&P 500 Index, it's important that Steve rebalance his investments now instead of trying to achieve diversification only through new contributions. If he took the latter approach, and assuming a very modest 6 percent annual growth rate in each fund, it would take Steve 40 years of making $12,000 annual contributions before his three funds were in balance. Obviously, he doesn't have that much time.

The three equity options in Steve's plan are the equivalents of investing in three mutual funds that track such indexes, such as Vanguard 500 Index (VFINX: news, chart, profile), Vanguard Extended Market Index (VEXMX: news, chart, profile) and Fidelity Spartan International Index (FSIIX: news, chart, profile).

The S&P 500 Index and Wilshire 4500, between them, cover almost the entire U.S. stock market. The EAFE Index is made up of large-cap stocks in many developed countries outside the United States.

Over the 18-year period 1984 through 2001, the longest and most recent period for which we could find readily available data, a portfolio equally invested in these three indexes, and re-balanced annually, would have grown at 12.4 percent annually.

Assuming that Steve contributes $12,000 a year to his plan for the next 20 years, a future growth rate of 12.4 percent would give him a nest egg of $1.8 million. If his money grew at only 10 percent, he'd still wind up with $1.3 million after 20 years.

Steve has some other allocation decisions ahead. In his email, he told us that although he plans to retire when he's 57, he doesn't expect to need his retirement savings for five to 10 years after that.

He also said he's been planning to move half the retirement fund into fixed-income options when he retires. But even when he retires, Steve can let his money grow for another five to 10 years. His need for growth won't change just because he won't be contributing after he's 57.

Once Steve starts taking out the money, a 50/50 balance between equity funds and fixed-income funds should serve him well. But I think he can get to that allocation more gradually.

How he gets there should depend on factors that can't be adequately foreseen now. A few years before Steve stops working, he should do some serious planning so he knows just how much income he will need from this government retirement savings. That in turn will tell him how big that fund needs to be.

We often tell investors approaching retirement that when their investments reach the level necessary to meet their needs, that is the time to back off from an all-equity allocation. If, for example, Steve can meet his needs with $50,000 a year from his investments, then whenever they reach $1 million is the time to start reducing his exposure to equities, putting some of his assets in fixed-income options.

Exactly how he does this should be determined closer to that time. This approach will keep Steve's assets working harder for him, in equities, while he needs growth. And it will let him reduce his risk when it's appropriate for him, instead of following a formula that might not apply to him.

Steve has an excellent start, having accumulated $90,000 by the age of 37. Even though his retirement plan options are very limited, with proper allocation and continued, regular savings, he can build a very sound retirement.