Distinguishing Between 401(k) Plans, Mutual Funds, and Securities

Distinguishing Between 401(k) Plans, Mutual Funds, and Securities

Date: January 07, 2020,

Planning for the financial future and understanding the various types of investment strategies available to you can be overwhelming, especially if you don’t have a background in finance or banking. Fortunately, there are professionals available to help you make sound decisions about your investments and planning for your future. As you navigate the different investment options available to you, consider these key differences between 401(k) plans, mutual funds, and securities.

401(k) Plans 

Unlike other types of investments that are personal, a 401(k) plan is a company/employer-sponsored retirement account. With a 401(k) plan, employees can make contributions to the plan, and then employers will match those contributions. Another important thing to know about a 401(k) plan is that with a traditional 401(k), you can reduce your tax burden each year by deducting the amount that you contribute to your 401(k) from your income; however, when you make a withdrawal, that withdrawal will be taxed. The exception to this is a Roth 401(k) plan, where withdrawals will not be taxed.   

Mutual Funds

Most people without a background in finance don’t have a developed understanding of mutual funds. Here are some key points about mutual funds that you should know, especially if you’re thinking about investing:

  • Mutual funds allow you to pool your money with other investors (i.e., there is a shared, mutual interest)
  • Once funds are pooled, they can be used to purchase a collection of stocks, bonds, and securities that you may not otherwise be able to purchase on your own
  • The purpose of mutual funds is to produce income/capital gains for a fund’s investors
  • Mutual funds are managed by a financial professional, such as a fund manager or team of managers – these professionals are responsible for making decisions about what to buy or sell within the fund

Mutual funds can be a smart tool in your financial portfolio; it’s best to speak with a financial professional to learn more. 

Investing in mutual funds involves risk, including possible loss of principal.


Securities are actually much simpler to understand than the average person may think. In fact, securities are simply financial assets that can be categorized in two ways: debts and equities. Equity securities, as the name would imply, represent ownership interest in an entity that is held by a variety of shareholders; in other words, stock. Debt securities, on the other hand, entitle the holder to payment of some form, such as interest and repayment of principal. Examples of debt securities are corporate and government bonds. 

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Learn More About Your Investment Options

If you’re unsure what types of investment options can be used to save for retirement or help increase your wealth, working with a financial professional can be helpful. To learn more, schedule an appointment with Harvest Financial Planning, LLC at your convenience. Our team is here to guide you through your options.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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