Let’s be real, 401(k)s can be mind-boggling, especially for newbies like us. But fear not! As a fellow young adult who was once clueless about 401(k)s, I’m here to simplify things for both of us. Today, let’s unravel the mysterious world of securities – those fancy investment options you’ve probably heard about.
What is a security, anyway?
A security is an investment option that you can hold within a 401(k) account. That includes stocks, bonds, mutual funds, exchange-traded funds (ETFs) and more.
4 Common Securities:
- Stocks: Owning a Roller Coaster
Imagine owning a slice of Apple or Walmart. That’s what stocks are all about – becoming a part-owner of publicly traded companies. Stocks offer long-term growth potential but can be a bit trickier to predict. They can be a bit of a rollercoaster but over time, your savings tend to come out on top.
- Bonds: Ol’ Faithful
Bonds are like the responsible friend. They’re basically loans you give to governments, municipalities, or corporations. They agree to pay you back on a specific date, and in the meantime, they pay you periodic interest payments. Although there are risks, bonds typically provide a steady and predictable income stream, even if low-yield.
- Mutual Funds: Power in Numbers
Mutual funds pool money from multiple investors to create a diversified portfolio of stocks, bonds, or other assets. Professional fund managers oversee them, providing instant diversification.
- Exchange Traded Funds (ETFs): Flexibility You Need
ETFs combine the best of both mutual funds and individual stocks, offering diversification and trading flexibility. I found out that’s why saveday chooses to invest in ETFs over mutual funds. Check out why in this post here.
So there’s the skinny on securities. Stocks offer ownership of publicly traded companies, bonds function as loans to large institutions such as governments, mutual funds diversify investments for you, and ETFs offer diversity with greater flexibility.
The more I learn about 401(k)s, the more confident I become in saveday. With proven Nobel Prize-winning investment methods like Modern Portfolio Theory, they’ve helped my retirement savings grow. It makes me excited for the retirement possibilities ahead!
If you’re craving more insights, head over to the saveday blog. And stay tuned for the next nugget of knowledge, where I’ll be digging in to the different types of 401(k)s!
Happy Saving,
-Emma
