Understand your workplace investment package

For many employees one of the best benefits of their job can be the investment package their employer offer.Many employers offer the chance to participate in investing. This is usually done through a mutual fund and the employer may or may not offer matching funds. Matching funds is technically "free money" that is put in by the employer.This is usually done on a formula that is based on how much you contribute to the plan.

When you participate in your workplace savings plan, you typically do not invest directly in stocks, bonds, and short-term investments. Instead, you invest in mutual funds, which are made up of many individual stocks, bonds, and other investments. Professional fund managers select underlying investments for mutual funds that they believe will best help the fund achieve its stated goal for investors.

For the most part participating in your workplace investing plan can be a smart financial move. In addition to offering a vehicle to help when saving for retirement, other benefits include:

• Lowering your current income tax bill and you can delay paying income taxes on your contributions and any earnings until you withdraw them from the plan.


• Increasing your chances for long-term success by contributing regular amounts on a consistent basis.


• This type of plan offers numerous choices from a variety of investment options to help meet your investment needs today and your income needs during retirement.


• However once you have decided to start saving for your future through your workplace savings plan, there are a few investment basics you will need to know.

One of the first things you should know is defined as asset allocation. Selecting investment options that are suitable for your situation is known as asset allocation. Generally there are three types of investments (also known as asset classes) that you can choose from to help build a workplace savings plan investment mix that works for you.Every potential investor needs to keep in mind that neither diversification nor asset allocation ensures a profit or guarantees against a loss. This type of investing carries the same type of risk as any other.

Here is a brief rundown of the three basic investment building blocks along with some pros and cons of each:

• Stocks-These are also called "equity investments".Stocks are investments in individual businesses that essentially allow you to share in the ownership of a company.The many benefit of this type of investment is the high potential for growth over the long term. However it should be understood that there is an increased investment risk due to the very nature of stocks.In addition their performance is highly influenced by economic factors worldwide.


• Bonds-The main thing to know when you buy a bond is that you are lending money to the issuer (government, municipality, corporation, or federal agency), which then pays you back.Some examples of bonds include: U.S. Treasury, state, municipal, or corporate bonds. When investing with bonds there is an increased benefit of current potential income and more stability than stocks. There is also some inflation protection.Investors should understand though because of the lower risk bond returns are never as high as stocks.


• Short-Term Investments-These are investments that include:money market investments, U.S. Treasury bills, and certificates of deposit. They are designed to return your money with interest, after a relatively short amount of time (usually less than one year). While this type of investment is less volatile than stocks or bonds there is also lower potential for growth and little inflation protection.It should be understood as well that with any investment past performance is no guarantee of future results.