Naked Truth Investing: 401(k) plans: Making lemonade from lemons.

This is the part of a new series of columns called "The Naked Truth," by retirement expert Dan Solin. Please bring him your questions, in the comments box, and he will answer as many as he can.

Question: I have quit my job and taken my retirement monies, but I still need to leave my 401K alone for 4 more years. I can leave it there and let it ride, or with your suggestions I could switch it over to one that is doing better than my current one with Safeway Corp.

Answer: Since I don't know the investment options available in your current plan, I cannot evaluate whether you would be better off keeping your funds with that plan or rolling it over into an IRA. However, as a general matter, I can tell you that most 401(k) plans do not offer appropriate low cost index funds for their employees. If this is the case with your current plan, you might be better off rolling it over to an IRA.

If you decide to pursue this option, here is my advice:

First: Determine your asset allocation by taking an asset allocation questionnaire. You will find many on the internet, including one on my web site.

Second: Open an account with Vanguard. There are other excellent fund families you could consider, like Fidelity and T. Rowe Price. However, Vanguard has historically been the leader in offering low cost index funds.

Third: Invest 70% of the amount of your funds allocated to stocks in the Vanguard Total Stock Market Index Fund (VTSMX), and the balance of 30% in the Vanguard Total International Stock Index Fund (VGTSX). Invest 100% of the funds allocated to bonds in the Vanguard Total Bond Market Index Fund (VBMFX).

Fourth: Once or twice a year, rebalance your portfolio to be sure that your asset allocation remains intact.

This simple portfolio has historically outperformed 95% of all professionally managed money over the long term. In your case, if you intend to withdraw the money in four years, it may or may not outperform the investments in your current 401(k) plan.

If you are in a 401(k) that does not offer these options, this is a way to make lemonade from lemons.

Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008). Visit his website at Smartestinvestmentbook.com.