Like the neighborhood ice cream shop that offers a variety of flavors, your retirement plan may offer a choice of stock funds or portfolios. While the funds all invest in stocks, each fund is different. You should consider your choices carefully before making any investing decisions. Here’s the scoop on the various types of stocks.
Fund Flavors
Your plan may offer funds that invest only in certain types of stocks, such as:
Growth stocks: The stocks of companies whose earnings are increasing faster than those of other companies in their industry or the overall market.
Income stocks: The stocks of companies that have consistently paid out dividends to investors.
Value stocks: Stocks that are selling for a lower price than their earnings or growth potential might indicate.
Blue chip stocks: Stocks that are issued by large, well-known companies that have a solid history of growth and generally have paid dividends.
How Many Scoops?
Some stock funds include only the stocks of companies of a certain size. Your plan may offer funds that invest in:
Large-cap stocks: The stocks of very big companies that tend to be long-established industry leaders.
Mid-cap stocks: The stocks issued by medium-sized companies. They are generally riskier than large-cap stocks but may offer more growth potential.
Small-cap stocks: Stocks issued by smaller companies that may be relatively new. They’re considered riskier than the stocks of larger companies, but they may also offer the potential for substantial growth.
If you decide to invest some of your retirement plan money in stocks, you don’t have to choose just one stock fund or portfolio. You can choose a mix of investments that suits your risk tolerance and investment time frame.
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