Can A 401K Be A Certificate of Deposit

“Can a 401K be a Certificate of Deposit?” Yes, but the correct question is “Can a 401K include CDs?” CDs may be included in the 401K investment mix.

A 401K Plan is an Accumulation of Investments for Retirement
Think of the 401K as a flexible sack that can expand or shrink. If thought of in this way, it is easy to see that 401K describes the purpose and tax implications of the contents of the sack, in this case tax-free, deferred income for retirement. The sack may contain Certificates of Deposits, mutual fund investments, stock, or any investment vehicle not specifically excluded from a 401K by law.

Current 401K Investment Thinking

In deciding on the type of investments to hold in a 401K account, the first consideration is the age of the investor, with the broad question being, “When will the money be needed, and how much time exists between then and now. A 60 year-old investor will more than likely begin drawing on the 401K funds for living expenses much sooner than a 30 year-old. It is logical then that an older investor’s goal will be to protect principal at the expense of higher investment earnings, avoiding risk to principal; should something go wrong with risky investments, a 60 year-old has much less time to recover the loss. The investment strategy should therefore be weighted heavily toward conservative, less volatile holdings, such as Certificates of Deposits or Treasury Bonds. The opposite is true for a 30 year-old; the strategy should consider the full bell curve of risk free to highly volatile investments.

So, Can a 401K Be A Certificate of Deposit?

Yes, a 401K Certificate of Deposit is the correct investment for any 401K investment mix. The young should protect themselves from losing all their retirement money by including some conservative holdings, while the older investor should protect as much principal as possible.

Related posts

1. What Is The Difference Between An Annuity And A Certificate of Deposit
2. What Is The Different Between A Certificate Of Deposit And An Ira?
3. What Is The Purpose Of A Certificate Of Deposit?
4. How Does A Certificate Of Deposit Work?
5. What Is A Certificate Of Deposit And How Does It Work?

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