HOW MUCH? 401K investments

401K investment options.


Most 401k plans offer a broad range of investment options, typically at least five. They usually depend on the size of the company. Larger employers tend to have more choices.

How your money is invested will have an enormous impact on your return, so it is essential to know your options and educate yourself in order to make sound and comfortable choices. The truly great feature of a 401K plan is the fact that you can divide your money, putting it into different financial vehicles, thus balancing the investment risks and the relative certainty that some options may provide.

Fixed Funds.

Fixed Funds, sometimes called Guaranteed Funds, are known for steady, predictable growth in the long term. They carry Guaranteed Interest Contracts underwritten by insurance companies, and because of that fact are commonly considered very low risk funds. But low risk also means low, fixed interest rates, and when offset with inflation – small growth.

Mutual Funds.

Mutual Funds are really great investment options designed to reduce risk. They allow small investors to put their money in stocks, bonds and other various instruments. An average 401K will offer at least a few mutual funds in which you can invest. In general, you can further divide this form of investing into the following categories:

- money market funds are considered very low risk and have very low return. They use Treasury bills, certificates of deposit and other instruments. Sometimes, the return on these investments is less than inflation.

- bond funds invest in government loans, both federal and local. They are low to moderate risk investments and are very sensitive to interest rate changes.

- balanced funds mix stocks and bonds to reduce the investment risk of stocks and to benefit from the certainty of bonds.

- stock index funds consist of stocks of companies which are found in market indexes and who generally follow the stock market. Among all stock mutual funds, they are probably the safest in which to invest.

- income and growth funds are investments in companies which have a proven track record of paying dividends, yet still have the potential for fast growth. The risk of these funds is considered to be moderate.

401k Investment Options
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- growth funds select companies which have strong growth potential, but have not proven to be highly profitable by paying dividends.

- aggressive growth funds invest in usually small companies, which have a great potential for growth. The possibility of a high return comes with high risk investments.

- international funds invest in companies outside the United States. These investments carry a risk of currency exchange rates, economic and political conditions in other countries and are commonly believed to have the greatest potential for a high return.

Company Stocks.

Single company stocks (including a company you work for) always represent a greater risk than any other kind of investment; thus it should be only a small fraction of your overall 401Kinvestment.

401K plans are not insured by the federal government, and their investments, whatever they might be, carry different degrees of uncertainty. It is always advised by financial specialists to diversify your investments by investing in different types of assets. To find out more about mutual funds and other 401K investment options; ask your plan administrator for information. Financial magazines, prospectus and brochures also can be good sources for learning about particular investment options.

Note that the above article is not intended to give financial advice in any way, but is merely an introduction to 401K investment options.

See also: 401K plan, 401k withdrawal, IRA account , rate changes

Related topics: automatic 401K options, knowing your investments, increasing 401K savings




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