In a 2018 research study of American household’s financial lives, 15% of the adults surveyed were “workplace-only investors.” That is, they invested in stocks and bonds, but only through their workplace retirement accounts. What the survey found was that these workplace-only investors have significantly less understanding of investment concepts than other investors. How important is this? According to the Investment Company Institute, 401(k) plans hold more than $5 trillion in assets!
Only 25% of the workplace-only investors could correctly answer this question: “If interest rates rise, what will happen to bond prices?” And only 46% successfully fielded this true/false statement: “Buying a single company’s stock usually provides a safer return than a stock mutual fund.”
If your only exposure to investing is through your 401(k), 403(b) or similar plan, you may not think of yourself as an investor. But you are! While you may not wish to make a second career of studying the arcana of investing, you do owe it to yourself and your family to be well-acquainted with some of the basics. You will certainly want to have the confidence to make the most appropriate choices with what is likely one of your biggest assets.
So, what are the very basics? You should understand:
- That the possibility of a higher return on an investment almost always comes with more risk.
- What it means to have a diversified portfolio and why this is important.
- Why stock and bond prices can behave differently depending on the state of the economy.
- That fees charged by investment managers will reduce the potential value of your savings.
Chances are you would not get behind the wheel of a car for the first time without taking a bit of time to understand the rules of the road. Similarly, it is likely a bad idea to send off your retirement account paperwork without taking a bit of time to understand the investment choices on offer.
For more information, contact us to chat!
Lisa is an Accredited Financial Counselor (AFC) leveraging her professional and educational experience in finance and economics. Lisa’s 18-year career in international development has given her the opportunity to appreciate the value of diverse societies, and to work across cultures to improve lives. As an AFC, she plans to continue that perspective, working with all households to achieve financial wellness.