What is the purpose of a 401(k) plan?
A 401(k) plan is a retirement savings account that allows employees to contribute pre-tax income, which is taxed upon withdrawal.
What is the benefit of contributing to a Roth IRA?
The benefit of contributing to a Roth IRA is that earnings and withdrawals are tax-free after the age of 59½, provided the account has been open for at least five years.
What is the difference between a traditional IRA and a Roth IRA?
The primary difference is that contributions to a traditional IRA are tax-deductible, while contributions to a Roth IRA are made with after-tax money, but withdrawals are tax-free.
How does compound interest benefit retirement savings?
Compound interest allows savings to grow faster because interest is earned on both the initial principal and the accumulated interest from previous periods.
What is a target-date fund?
A target-date fund automatically adjusts its asset allocation over time based on a target retirement date, becoming more conservative as the date approaches.
What is the difference between stocks and bonds?
Stocks represent ownership in a company, while bonds are debt securities issued by a company or government.
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What is asset allocation?
Asset allocation is the process of diversifying investments across different asset classes, such as stocks, bonds, and real estate, to balance risk and return.
Why is it important to start saving for retirement early?
Starting early allows for more time to take advantage of compound interest, which can significantly increase the amount saved for retirement.
What is diversification in investing?
Diversification is the practice of spreading investments across different asset classes to reduce risk and increase potential for returns.