City Beverages Enrollment - Web Book - Ready - Flipbook - Page 14
4.
UNDERSTANDING INVESTMENTS
Once you recognize the benefits of participating in your retirement savings plan, the next step is to begin
building your investment strategy. Through your plan, you have a wide range of investment options to choose
from. The right mix of investments for you will depend on several factors, such as the number of years you
have until you retire; your lifestyle and financial situation; and your ability to withstand market swings
(occasional changes in the value of your investments). In addition, you need to understand the types of
investments offered, as well as the risk and reward potential associated with each type.
About Asset Classes
In general, the investment choices in your retirement savings plan can be categorized into one of three major
asset classes— stocks (or equities), bonds (or fixed-income securities), and cash (or money market or stable
value securities).
Stocks represent a share of
ownership in a company. When
you buy a stock, you buy part
ownership in that company. The
value of a stock rises and falls
according to how attractive it is
to buyers and is influenced by the
general conditions of the stock
market. Stocks are considered the
riskiest of these three asset
classes, but they also offer the
highest potential rewards for that
risk.
Bonds represent debt and are
considered IOUs. When you buy
bonds, you are essentially lending
money to a company, city, or other
government body. The seller of the
bond promises to make regular
interest payments for a specific
period of time and then repay the
loan at a stated date in the future,
known as the bond’s “maturity
date.” Bonds’ risk/return potential
can vary depending on their type,
but generally they are considered a
moderate-risk investment and offer
a moderate rate of return.
Cash investments are safe,
short-term investments such as
money market securities and
investment contracts. The value
of your principal (the money you
contribute) will rarely fluctuate,
although interest rates will rise
and fall with market conditions.
Cash investments are low-risk
investments, but they also offer
the lowest potential returns.
LEARN MORE
About Investment Funds
When you invest through your retirement savings plan, your
money may be invested in mutual funds or pooled funds,
as opposed to individual stocks, bonds, or cash investments.
Mutual funds and pooled funds are managed by professional
money managers, who “pool” the money of many different
individuals and use that combined buying power to purchase
a variety of different stocks, bonds, and/or cash investments.
Each fund pursues a stated objective, which can be found in
its prospectus. Your ownership in the fund is represented by
the number of shares you own.
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