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Cramer on Retirement: Individual Stocks Are Right for Your 401(k)

(Editor's note: This is the second in a series of weekly columns on retirement by Jim Cramer, founder of TheStreet , and Wally Konrad, former senior editor for Smart Money magazine. To read the first installment, click here.)

NEW YORK ( TheStreet) -- Say you've become enamored with an Internet stock that's bound to benefit from the Facebook (FB) frenzy.

Or maybe you want to add to your holdings of Walt Disney (DIS) after the great numbers it just put out.

Now say you want to stash these picks in your 401(k) account, convinced they'll give your nest egg the boost it needs.

Chances are, you're out of luck.

That's because only a fraction of employers let workers pick the investments they want. Instead, most employers give you a limited list of 10 to 20 funds -- many of them with limited performance to match -- usually in just one fund family.

A handful of enlightened employers offer what's called a self-directed brokerage window within their 401(k)s. With this tool, employees can buy mutual funds outside the company's picks, ETFs, stocks, bonds and just about any other investment not offered in their company's menu.

In other words, a brokerage window opens up hundreds, even thousands, of choices to a 401(k) investor.

> > Funds That Win With High-Quality Bonds

But only about one in five employers surveyed offered a brokerage window, according to a 2009 study by Aon/Hewitt. Fidelity, a leading 401(k) provider, says that just 9% of the 20,000 employers it serves offer brokerage windows, and of those, 72% offer the ability to purchase individual stocks.

Employers' resistance probably stems from good intentions, but it's still misguided. Afraid the average 401(k) holder will trade too much and squander his or her nest egg, big companies want to protect investors from themselves.

Some critics have called picking stocks in 401(k)s akin to putting a loaded gun in investors hands or letting the inmates run the asylum.

I don't agree.

And I certainly don't think you're crazy or dangerous if you're looking for maximum returns and wider diversification via individual stock picks in your retirement account.

The truth is, 401(k) investors don't become trigger-happy traders the minute they have a brokerage option.

According to research by Charles Schwab, the average number of trades the brokerage firm sees among 401(k) investors it serves is only 5.2 per year.

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