Chingo De Dinero

I run into the confusion all of the time between 401ks and Mutual Funds.  Many people think they are one in the same, or at least something similar.  I hear the statements:

“I rather invest in a 401k then stocks”

“My 401k has less fees then mutual funds”

“There is less risk in a 401k then mutual funds”

Once I hear these statements, I quickly know something is wrong.  401k is not an investment, it is a tax code.  It relates to pretax investments made by workers, and many times matched by employers.  Once you put money into a 401k, it must be invested, which is usually some different choices of mutual funds, determined by your employer.  So really, then people are trying to pick between 401k and a mutual fund, they are talking apples and oranges, and usually will end up with both.

Another very similar statement I hear is about IRAs vs mutual funds, or vs stocks.  Same story, IRA (individual retirement account) is more about tax treatment, not investment type.  Inside of the IRA, you invest in mutual funds, stocks, CDs, or whatever your preference is.