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Get to Know Your Investments
> Understanding Your Risk
> Finding the Right Balance: Asset Allocation
> Staying on Track

The first step to successful investing is becoming familiar with the different types of investments that can help you get where you want to go.

Pool Your Money

You can invest your retirement plan savings in several types of mutual funds. A mutual fund pools your money with that of many other people who have similar – or mutual – investment goals. Professional fund managers use the pool to buy a variety of investments (such as stocks, bonds, and cash equivalents that fit into the mutual fund's investment strategy). The value of your account reflects the underlying performance of the securities in which the mutual fund invests.

Choose from Seven Categories

Your retirement plan offers seven basic categories of mutual funds. Each has its own potential risks and rewards.*

To learn more about these fund categories, review sections in the graphic below.

chart


Cash Funds: Cash funds invest in short-term debt securities such as bankers' acceptances, commercial paper, repurchase agreements, and government bills that earn interest and strive to maintain principal. An investment in cash funds is neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC). Examples of cash funds include money market funds and stable value funds. These are the least volatile type of fund listed and usually have the lowest overall long-term return.

Bond Funds: Bond funds may invest in one or more type of bond, such as corporate bonds, government bonds, or mortgage-backed securities. When you purchase bonds, you are lending money to a corporation or government entity. In return, you receive interest. Bond investments may be classified according to the time they are held (long-term versus short-term).

Balanced Funds: Balanced is the only category that includes both stocks and bonds. Examples of balanced funds include target-date funds and lifestyle funds. The stock portion of balanced funds may be invested in domestic and/or international companies of all sizes. The bond portion is invested in a combination of corporate and government bonds. Because balanced funds are more diversified than other funds, it may be appropriate to invest all your assets in one of these funds.

Large-Cap Funds: Large-cap funds invest in stocks issued by companies with a market capitalization of more than $10 billion. These funds invest in companies that are typically well-established and frequently pay steady dividends. Like all stocks, large-cap funds fluctuate in value daily depending on economic factors and the companies' business prospects and earnings; however, this volatility is usually less than international or small/mid-cap funds.

Small/Mid-Cap Funds: Small/mid-cap funds invest in stocks issued by companies with a market capitalization of less than $10 billion. Since these stocks are not as well-established as large-cap companies, these funds tend to be very volatile. Small/mid-cap funds tend to grow faster than large-cap funds, and often use any profits for expansion rather to pay dividends.

International Funds: International funds invest in companies based outside the United States. Due to currency fluctuations and political uncertainties, these funds tend to be very volatile. Examples of International Funds include foreign stock funds, global funds, and emerging market funds.

Specialty Funds: Specialty funds are usually non-diversified funds because they focus on a specific type of investment or sector. Because the specialty category does not invest in many segments or sectors of the market, this category generally has more risk and often more volatility than the other categories. Real estate funds and technology funds are examples of specialty funds.

*Classification of funds by category is not intended to be a precise indicator of future risk or return levels. The degree of risk within each category can vary significantly and some fund returns have historically been higher than more aggressive funds or lower than more conservative funds. A fund's category may change over time. It is important that you read a fund's prospectus carefully before you invest to ensure its objectives, policies, and risk potential are consistent with your needs.

Additional Information

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