From
Your Perspective:
Making sense of your 401(k) investments
Stock funds
About two-thirds of 401(k) assets nationwide are invested
in stock, or equity,
mutual
funds.
And that’s not without reason: Stock funds have
historically provided stronger investment
returns
than other types
of funds, although they have lost money in some years. And strong
returns make your 401(k) worth more as time goes by.
Most stock funds are designed to provide investment
growth
— but they may achieve this in different ways, at
different rates, and with different levels of
risk.
For instance, some make relatively conservative investments, sometimes
called
blue
chips.
Their goal is usually steady, if modest, growth in
value,
dividend
payments, and limited risk and
volatility.
At the other end of the spectrum, some stock
funds tend to invest in younger companies that fund managers
believe have the potential to become much more valuable in the
future than they are today. Because they’re often start-ups or cutting-edge
companies, there’s also a significant risk that some of
them may fail, which puts some of your
principal
at risk.
Before you select funds from those
your 401(k) offers, you should investigate their investment
objectives, management styles, levels of risk, and
fees. You can find all this information in the fund’s
prospectus,
along with its financial reports and a list of the
investments a fund holds. You can also check research
reports from companies such as
Lipper
and
Morningstar.
