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Company retirement plans provide you with different investment options. in most retirement plans, mutual funds are a common investment choice.
Company Retirement Plan Investment Options
Retirement plan differ in the specific options they offer, but these basic choices are common:
Money market funds: These funds offer safety of principal because they don’t fluctuate in value. But you run the risk that your investment won’t keep up with or stay ahead of inflation and taxes . In most cases, skip this option. If you use the borrowing feature that some retirement plans allow, you may need to keep money in the money market investment option. For regular contributions coming out of your paycheck, money funds make little sense.
Bond mutual funds: This option pays higher yields than money funds but carries greater risk because the value can fall if interest rates increase. However, bonds tend to be more stable in value than stocks. Aggressive, younger investors should keep a minimum amount of money in these funds, whereas older folks who want to invest more conservatively may want to invest more money this way.
Guaranteed-investment contracts (GICs): Backed by an insurance company that typically quotes you an interest rate a little lower than on bond funds, GICs have no volatility . The insurance company, however, normally invests your money mostly in bonds and a bit in stocks. GICs are generally better than keeping your retirement money in a money market or savings account, both of which usually pay a couple of percent less in yield
Balanced mutual funds: Invest in a mixture primarily of stocks and bonds. These funds are solid options and can be used for the majority of your retirement plan contributions.
Stock mutual funds: Invest in stocks, which usually provide greater long-term growth potential but also wider fluctuations in value from year to year. Some companies offer a number of different stock funds, including those investing overseas.
Employee Stock Ownership Plans (ESOPs): Offer employees the option of investing in their company’s stock (not all companies make these plans available). If you expect your company to conquer the competition, though, investing a portion of your retirement account is fine if you’re a risk-seeking sort — but no more than 25 percent. |