Investment Basics

Taking Stock: The Basics of the Financial Industry

To the uninitiated, the idea of investing in the stock market can be intimidating. Anyone who has seen television footage of frantic traders on the floor of the stock exchange, or has heard bleak tales about stock market crashes, may feel like throwing up his or her hands and running to the nearest bank to stash that nest egg in a savings account.

But for 401(k) investors, a little knowledge about financial markets can take you a long way -- all the way to retirement with a lot more money than you'd probably get with a simple bank account.

While it is important for a 401(k) investor to have some understanding of how financial markets work, the beauty of a 401(k) is that you're actually better off not poring over daily investment news and worrying about every minor event on Wall Street. These short-term issues distract from the real story -- the long-term performance of your investments.

In this chapter, we will cover some of the rudiments of finance -- how stocks and bonds work, how investors function in the financial markets and how to access financial markets cheaply and efficiently.

• Stocks, Bonds and Basic Instruments
  What they are, how they trade.
• Investment Vehicles
  Mutual funds, stable value funds and other pools of money. The advantages, and a few warnings.
• Historical Returns
  How assets have done in the past, and what we might expect in the future.
• International Stocks
  A special section on the growth of the global investment market.
• Investment Advantages
  Why investing in a 401(k) plan puts you in the catbird seat.