The investment funds in a group retirement and savings plan offer many benefits.
When you’re a member of a group plan, you select investment funds rather than individual stocks and bonds. An investment fund is a collection of stocks, bonds, or other investments called holdings. These holdings vary depending on the type of fund and its investment objective. It’s far easier for you to review and research one investment fund than each individual holding that makes up the fund.
Professional fund management
It takes time and know-how to carefully research holdings and package them into a strong fund. Most of us simply don’t have the time or expertise to do it right. Investment funds are assembled and monitored by seasoned investment managers.
Investment funds in a group plan offer more diversity. For example, an individual investor with $1,000 might be able to buy a few shares in one or two companies, or maybe a bond. In a group plan, that same $1,000 could buy units in a variety of investment funds – each with holdings in a wide range of securities, industries and even countries.
You can start small
You don’t need a lot of money to start investing. The secret is to simply get started and make regular contributions to your plan.
Many organizations offer contributions through payroll deductions or let you put lump-sum amounts in your plan.
Many levels of risk
Some investments may be low-risk, like money market funds, and others may be high-risk, like growth stock funds. This variety of investment options gives you the flexibility to make choices that best fit your investment personality.
Typically lower costs
Investment management fees and fund operating expenses for group plans are calculated using the combined power of the whole plan. This means these costs are typically lower when compared to retail funds for individual investors.
Things to think about
No one can predict how the value of investment funds will fluctuate – not even the experts. The more aggressive a fund is, the more ups and downs it’s likely to experience. As an investor you must remember to look at the long term. If one of your funds experiences a downturn, see if it still fits your risk tolerance or long-term objectives before deciding whether to change your investments.
The “big score” and the “big loss”
Group plans offer benefits such as dollar-cost averaging and diversification of investments, which both lead to lower long-term risk. Diversification can protect you from experiencing a significant loss should one stock fail, but it also prevents you from experiencing the “big score” of a hot stock’s rapid rise in value. Attempting to time the market often results in a “big loss.” The diversification of an investment fund may help to soften the blow of any decline in the market. Investing in just a few individual stocks likely won’t offer this protection.
The choices are still yours. Doing your homework, choosing wisely, monitoring your progress, reworking your plan, raising contributions – in the end, your goal for a comfortable retirement is in your hands.