11
Investment Types—Choose Your Breed
Sure, you want to reach your retirement savings goal. But attaining this goal requires more than regular, old-fashioned
saving. Deciding how to invest your retirement savings can be just as significant as how much you decide to save.
That’s why it’s essential to gain an understanding of the basics in order to select the investment options in the 401(k)
Plan that are best suited for your goals and risk tolerance.
Each of the three main asset types – stocks, bonds and short-term investments – has distinct characteristics and may
perform differently in response to changes in the market. When you develop your retirement savings portfolio, it’s
important to keep these characteristics in mind:
Investment Type
Description
Benefits
Considerations
Stocks
Stocks or “equities” are
ownership shares in a company.
For example, if you buy 10,000
shares in a company with one
million shares outstanding, you
own one percent of the company.
Historically, stocks have
outperformed every other
investment type over
the long-term. Stocks
can be a great way to
add momentum to your
savings.
While stocks generally do provide
the most growth potential, they
also tend to have the most risk. If
you choose to invest in stocks, be
sure you understand and are willing
to accept this risk, including a
possibility of loss of money.
Bonds
A bond is a type of security
that pays a fixed amount of
interest at regular intervals over
a certain period of time. Bonds
are essentially loans given to
companies and government
entities that promise to pay
back the loan at a specified
interest rate. Bonds may also
be known as fixed-income
investments.
Bonds are usually less
risky than stocks and
can provide income that
is more consistent. The
full faith and credit of
the U.S. Government or
its agencies back federal
government bonds.
Other types of bonds are
municipal and corporate
bonds.
Generally, bonds don’t provide the
same level of growth that stocks
can. While they’re considered a
more moderate risk investment,
there are risks to consider,
such as the creditworthiness of
bond issuers and interest rate
fluctuations. If you choose to
invest in bonds, be sure you
understand and are willing to
accept this risk, including a
possibility of loss of money.
Short-term
Investments
Short-term investments are
relatively steady investment
securities that can be easily
converted to cash, such as
Certificates of Deposit (CDs),
Treasury bills, some money
market accounts and some
Stable Value Funds.
Short-term investments
are great for “temporary
parking.” They offer access
to your cash and typically
modest growth.
Short-term investments alone
are better than stuffing money in
your mattress, but they typically
don’t give you the kind of growth
you may need to keep up with
increases in the cost of living over
the long term.
