401K Stock Options

A 401k is basically a retirement savings account that allows an employee to begin saving for their retirement fund, while also investing the account balance on a continual basis for additional returns. The balance of a 401k plan is typically tax-exempt, which means the account balance and interest earnings are not subject to income taxes until the account has reached maturity and the funds are withdrawn. One way 401k account holders invest their retirement funds is through 401k stock options, of which there are a variety available. Utilizing the funds of a 401k account properly and devising an effective investment plan is a crucial step in maximizing retirement funds and ensuring an enjoyable lifestyle during retirement. The following are some of the most popular 401k stock options that can be incorporated into your 401k investment portfolio.

Index Funds
Index funds are unmanaged 401k stock options that continuously monitor a particular sector of the stock market, and are therefore useful analytical tools that should be utilized by any 401k stock investor. For example, the S&P 500 index fund tracks the stock statistics for 500 companies, which may include the indexes of small, mid, and large-cap stocks, as well as individual stock market sectors such as those related to technology, healthcare, and other industries.

Small-Cap Stocks
Small-cap stocks are basically the stocks of smaller companies, and are therefore slightly riskier 401k stock options than mid-cap and large-cap stocks, as small business stocks can plummet or soar as a result of much more subtle business events. Nonetheless, small-cap stocks provide a unique opportunity because they are usually underpriced, as most investors tend to overlook them. The key to being successful with small-cap stocks is finding the stocks that will eventually grow into mid-cap and large-cap stocks in the future.

Mid-Cap Stocks
In years past, the majority of mid-cap stocks were shares of large technology companies. However, as many of these technology companies have expanded and become large-cap stocks, the new mid-cap stock sector is being increasingly populated by newer retailers and health care providers. Although mid-cap stocks are less risky than small-cap stocks, they are slightly more risky than large-cap stocks.

Large-Cap Stocks
Nearly 75% of the largest companies in the world fall under the category of large-cap stocks. The success of large-cap stocks depends primarily on the health of the economy, as they tend to perform well when the economy is thriving and poor during economic turmoil. Large-cap stocks are considered to be the most stable and reliable 401k stock options, as the stocks of established companies are much less likely to plummet unexpectedly.

Target Funds
Target funds, also referred to as asset allocation funds, are custom managed funds that are specifically designed to meet the investment needs of the fund holder, and offer a high return on a specific target date listed within the fund terms. In general, target funds become safer investments as the target date closes in, as fund managers tend to allocate funds towards safer investments during this time. Target funds are an excellent option for individuals that are not experienced enough or willing to create their own unmanaged retirement investment portfolio.

International Stocks and Emerging Market Stocks
Investing in international stocks is usually more risky and complicated, as the investor has to consider additional factors such as political events, currency fluctuations, government policies, and socioeconomic occurrences. Thus, international stocks are some of the riskiest 401k stock options available. The only types of stocks that are considered to be riskier than international stocks are emerging markets stocks, which are basically the stocks of companies within revolutionary industries and emerging economies. An example of emerging market stocks would be those related to alternative energy and other futuristic industries which may or may not be successful in the near future.

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