Can any one explain to me what a 401k is and a mutual fund is as well.. Its very important that I know what it is such as the pros and cons of having one... Only serious answers please I'm so clueless about these things and I just would like to know what are the joys of having one and it really is
2006-10-03 04:57:17 · 4 answers · asked by Tee 3 in Business & Finance ➔ Personal Finance
Do you have access to a 401k? You should be able to contact someone within your HR dept who should relay you to a rep for the mutual fund company who administers your plan. If you really don't want to do much reading about the topic, it might be money well spent to visit a financial planner to answer your questions.
2006-10-03 06:45:02 · answer #1 · answered by Thundercat 7 · 0⤊ 0⤋
A 401k is a type of employer sponsored retirement account. Basically, your employer takes money out of your check and puts it pre-tax into an investment account. The advantage is that this lowers your current taxes and provides a way to automatically invest your money. When you retire, you will have access to that money and will pay taxes on it at your current tax rate.
Mutual funds are a type of investment. Basically, they are a basket of stocks which have something in common (market sector, market cap, etc.). When you invest in the fund, you are basically buying a little piece of each of those stocks. Mutual funds are beneficial because they give you good diversification with low effort and cost. When investing in Mutual Funds it is important to look at the fees. You should only invest in funds that have no sales loads and with annual expenses below 1%.
My favorite mutual fund provider is Vanguard.
I would strongly suggest that you read the two books listed under "Must Read" on the weblink below. They will teach you the basics and get you started off on the right foot.
Good luck!
2006-10-03 12:56:41 · answer #2 · answered by personal_finance_101 3 · 1⤊ 0⤋
If you have a small, or modest income, get a roth IRA while you can! seriously, I don't know how much longer they're going to let people start these. But they're great because they pull out your taxes first, and then you build interest on it which never gets taxed.
Average return on an IRA is about 10% over time. At least that's what mine has been. I got mine through State Farm, which is great because I don't want to pay a lot of attention to it and decide how the investments will go. As I age the percentages automatically shift from high-risk to low-risk investments (to maximize how much money I make), and it's all done for me. I just put in my money, and they do all the dirty work.
Anyway, the younger you start, the less you have to invest to reach a good amount by retirement, so go for it!
2006-10-03 14:02:01 · answer #3 · answered by daisyk 6 · 0⤊ 0⤋
A 401k is a retirement vechicle. Basically tex deferred money that you can't withdrawl until you retire.
A mutual fund is a investment vechicle where you put money in, an invesment manager combines it with other people's money and buys a portfolio of stocks.
2006-10-03 12:02:56 · answer #4 · answered by Anonymous · 2⤊ 0⤋