Quick learning: How to pick investments
About this video
This short video says picking 401k funds doesn't have to be confusing. You don't need individual stocks: most 401ks offer mutual or index funds, so you can choose a target date fund that adjusts automatically, or a simple mix of US stocks, international stocks and bonds, shifting toward bonds as retirement gets closer.
You'll be able to
- explain why you don't need to pick individual stocks in a 401k.
- describe what a target date fund does.
- explain how a simple mix should shift between stocks and bonds as you age.
Key words
- 401k
- A retirement savings plan offered through your employer.
- index fund
- A fund that bundles lots of different investments, often following a market index.
- mutual fund
- A bundle of many investments that you can buy as one product.
- target date fund
- A fund where you pick your retirement year and it adjusts its mix automatically over time.
- bonds
- Generally safer investments than stocks, used more as you get closer to retirement.
Transcript
- I don't know if you feel like this, but it's pretty easy to get confused picking your 401k funds, so you just don't. But it doesn't have to be that way. Let's make this simple. The options can look like this, which feels very overwhelming, but you don't need to pick individual stocks.
Most 401ks use mutual funds, often index funds, which are just bundles of lots of different investments. One option is a target date fund. You pick the year you plan to retire, and it adjusts automatically over time. Or keep it simple with a mix: US stocks, international stocks, and bonds.
More stocks when you're younger, more bonds when you're getting closer to retirement. So you don't need to get it perfect. You just need to get started investing.
Video © Khan Academy, used under CC BY-NC-SA. Watch on Khan Academy. Puzzicle is not affiliated with Khan Academy.