June 25, 2008

403(b) Investments

By law, 403(b) accounts can only use mutual funds as investment vehicles. This means that you cannot owe a stock (Apple, Google, GE, etc.), but a mutual fund that owns stocks (usually 20-100 in one fund). Remember... DIVERSIFICATION! To try and help explain the various mutual funds categories, I came up with the following table:

Overview of Mutual Fund Categories

  • Bond – Fixed Income funds that vary by type and rate
    • Much less volatile, but reduced return as well
    • Contrary to belief, you CAN lose money in bond funds
  • Balanced – A mix of bonds and equities
    • Usually less volatile than equity only funds, but does not get same returns
  • International – Foreign Equity Investments
    • Developed and emerging markets – higher returns, but more risk
  • Large Cap – Largest US Companies – Dow Jones Industrial, S&P 500
    • 3M, American Express, Dupont, GE, Google, IBM, Microsoft, Starbucks, etc.
  • Mid/Small Cap – Mid to Small US Corporations
    • Mid - Barnes & Noble, CarMax, ManPower, McAfee, Williams-Sonoma, etc.
    • Small – Bassett Furniture, Crocs, Gymboree, LA-Z Boy, Shaw Group, etc.
  • Growth - Higher returns are possible, but greater risk
  • Value - Less volatile usually, but usually lower returns

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