When you are driving down the highway looking ahead the road seems very flat yet when you stop to look at the surface of that smooth concrete you see many tiny ridges. The tires and springs of the car protect you from shocks and even potholes. To the rider it is very comfortable.

Investors who buy individual stocks subject themselves to the daily ups and downs that are similar to the small ridges of the road and sometimes are shocked by a deep price break like a pothole that could wreck everything. There are ways for the investor to make the investment ride much less hectic. There are two choices ? mutual funds and exchange traded funds. These have many similarities.

Both are composed of many different stocks that even out the daily bumps. Regular mutual funds and ETF?s may be very specialized or represent the entire market when index equities compose the fund makeup. An investor may purchase all 500 stocks in the S&P 500 Index either with a standard mutual fund or with the Spyder Index (SPY). Both have a very low expense ratios and may be bought with almost no commissions.

This method does smooth the daily ride, but does not protect the investor from the serious potholes. If the investor will take the time to investigate the past 100 years of stock market history it will show that there has not been any 10-year period during which there has not been a market break of from 25% to 40% or more. However, there is a way for the investor to protect funds from a major loss.

Both regular mutual funds and ETFs can be broken down into many categories and sectors. Some can be quite specific in areas. There are funds that buy only Japanese stocks, or Korean, Chinese, Latin America, European, etc. Others buy only bank stocks, healthcare providers, pharmaceutical companies, transportation, airlines, etc.

Any cursory glance will show that there are times when certain groups do well while others are losing value. The really smart investor or financial planner should be invested in those that are appreciating and sell out of the ones that turn weak. This is not rocket science and any broker should know how to do it. If he doesn?t, get another broker or financial planner.

Today there are mutual funds that invest in other mutual funds and switch from fund to fund to be in the strongest at all times. These are called fund of funds. There are very few of them at this time.

The intelligent investor wants to remove the potholes from his road to retirement and should seek to miss them by being out of the market when it has one of those disastrous downturns. Make the road as flat as possible and the journey comfortable.