Okay, but in a 401k, you're stuck with the choices your employer gives you, which may not have those options. (usually, the choices are moronic and don't even include more than one index fund. Mine has just one, and I reviewed my cousin's and found that it didn't have any. Commodity trades? You jest.)

I'm not in the US so I'm not fully familiar with the retirement options available there. Here in Canada we have what seems to me a pretty good system whereby I can have a tax sheltered brokerage account for retirement savings. In many cases it is hard to argue with the 'free money' of employer matched retirement plans and the tax advantages of particular schemes but I think it is wise to be mindful of all the advantages and disadvantages of a particular scheme (including things like counterparty risk regarding who ultimately backs up your investments) and take that into consideration when weighing options.

And if you're talking about a Roth, well, no mutual funds, not even Vanguard, will let you start out your saving by dividing up that $4000 between five different funds; each one has a minimum limit. You'd have to be investing for a while first, complicating the whole process.

This is definitely an issue when starting out. Transaction costs can make broad diversification prohibitively expensive when your total assets are modest. I see it as something to aim for over time but you are absolutely right to be mindful of these issues. If you have a reasonable choice of mutual funds you can look for ones that are diversified at least internationally if not across asset classes outside of equities and fixed income.

And if you mean taxable accounts, the taxable events incurred gore most of the gains.

This is why I like the options available in Canada. Between self-directed RRSPs and the new TFSA the tax-friendly saving options are pretty good.

The US is not alone in that respect -- other, long-developed countries have it even worse.

Indeed, and this is one reason I'm working towards my Canadian citizenship. It has relatively healthy finances compared to the UK where I grew up. I don't think the necessity for some form of default on the obligations of most developed countries' governments is widely appreciated yet.

Right, that's what I was referring to: investing in job skills so you can high-tail it to another country if things become unbearable (and hope they don't seize your assets on the way out).

This is in line with the broader view of diversification I am advocating. Over the typical individual's expected lifespan this is an important consideration. I think it is a sensible long term goal to diversify in a broad sense so that you maintain options to take your capital (human and otherwise) wherever you can expect the best return on it. Assuming that this will always be the same country you happen to have been born in is short sighted in my opinion.

On a diversification related note, this proposal from Ian Ayres and Barry Nalebuff is an interesting take on the merits of diversification across ones own lifespan.