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EQUI-PATH 403(b) Mutual Fund

  • You have a vision for the future. And it’s unlike anyone else’s. Which is why you'll want a plan to help bring that vision to life — one step at a time.

  • Not sure where to start?

    Get the basics

INVESTMENT PLANNING SPOTLIGHT

Growth vs. value: Two approaches to stock selection

Growth and value. They’re two distinct approaches to choosing investments. So which is right for you? Perhaps both.

REAL-LIFE STORY

Getting on track with estate planning

Financial planning is always important and when you have a family it's never too early to get started.

Watch Jeff's story

  • Saving and investing basics

What you'll learn

The fundamentals of stocks, bonds, mutual funds and other investment products
Why diversification and asset allocation matter – and how to get started
How tax deferred accounts may help you

The differences between saving and investing

Savings accounts, checking accounts, and certificates of deposit (CDs) help you put money away in a safe place for use in the future. They can generally be easily cashed in and are referred to as “liquid.”

But there's a trade-off for security and ready availability:  your money is general paid only a modest interest rate -- or none at all -- and so your savings grow slowly.

Investing involves committing money into an investment vehicle in the hopes of making a more substantial financial gain. Investing is different from saving because

  • It involves a greater level of risk
  • There is no guarantee that you will get your money back. You could lose the amount you've invested, which is called your principal.

But when you invest, you also have the opportunity to earn more money than when you save. This is known as the risk-reward trade-off.  Generating potentially higher returns generally involves some degree of risk.

Because of this trade-off, you should gauge your personal risk tolerance when choosing investments for your portfolio. The goal is to find an appropriate balance -- one that generates some gains, but still allows you to sleep at night.  Our financial professionals have tools to help you identify your risk-tolerance level.

Both saving and investing are crucial to helping you reach your financial goal.  Savings accounts are generally straightforward affairs available from banks and credit unions. Here we will focus on the investment side of the equation.

What are stocks?

Stock represents partial ownership of a company.1 By purchasing stock, you stake a claim in the future of that company and the potential investment return that it may bring.  A stock’s price is determined on the open market by how much investors are willing to pay for it, so that price may rise or fall.

You may also receive dividends, which are paid to shareholders from the company's earnings. The amount of the dividend is decided by the board of directors and is based on what portion of earnings needs to be reinvested in the growth of the company and what portion the company decides can be distributed to shareholders. Whether or not a company has a history of paying dividends regularly is just one benefit to consider when considering a stock purchase, keeping in mind that past performance is no guarantee of any future return.

As a shareholder of common stock, you -- along with potentially millions of other shareholders -- have a vote on issues such as election of a board of directors and other important issues affecting the direction of the company.

With potential reward, however, you also have associated risk. The stock’s value stock will fluctuate with its performance and the perceived value investors place on it. In the best case, the company performs well and is attractive to other investors and you are rewarded as the value increases. In the worst case, when a company is forced to liquidate, it is first obligated to pay its creditors, bondholders, and those who hold preferred stock (a limited issue stock that does not hold voting rights) before those who own common stock.

So, stocks carry higher investment risks and potential rewards than bonds or money market investments.  Historically, they have realized higher rates of return in the aggregate and over the long term. In deciding to invest in stocks, investors must weigh the potential reward with the potential risk of loss.

What are bonds?

A bond is like an IOU for money that is, essentially, loaned by an investor to the bond's issuer, such as a company or a municipality.2 In return for the use of that money, the issuer agrees to pay interest to the investor at a stated rate known as the coupon rate. At the end of an agreed-upon time period when the bond matures, the issuer repays the investor's principal.

Bonds may be sold by the issuer to individual investors, but are more generally purchased in large lots by firms that then resell to individuals and mutual fund companies. Investors are then free to buy and sell those bonds on the open market, which accounts for fluctuations in their price over time.

Because bonds tend not to move in tandem with stock investments, they help provide diversification in an investor's portfolio. They also help provide investors with an income stream, usually at a higher rate than money market investments.

All bonds carry some degree of credit risk, or the risk that the bond issuer may default on one or more payments before the bond reaches maturity. In the event of a default, you may lose some or all of the income you were expecting, and even some or all the principal amount invested.

Like stocks, all bonds can present the risk of price fluctuation (or market risk) to an investor who is unable to hold them until the maturity date (when the original principal amount is repaid to the bondholder). If an investor is forced to sell or liquidate a bond before it matures, and the bond's price has fallen, he or she can lose part of the principal investment as well as the future income stream.

Another risk common to all bonds is interest rate risk. In normal circumstances, when market interest rate levels rise, existing bonds' market values usually drop (and vice versa), although past performance does not assure future results. However, interest rate risk's effect on market value may be a relatively minor factor for income-oriented, buy-and-hold investment strategies. That's because bondholders are generally entitled to receive the full principal value of their bonds at maturity, regardless of any short-term changes in market value that might have been caused by fluctuations in market interest rates. 

What are money market investments?

Money market funds are pools of short-term investments that usually mature within a time period defined at the time of purchase, often one year.3 Unlike a bank savings account, they are not FDIC- guaranteed and can lose value. They seek to maintain a stable net asset value of $1. Money market funds invest in short-term debt instruments such as bank certificates of deposit, repurchase agreements, and government-agency obligations. An investment in a money market fund is not guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve your investment at $1.00 per share, it is possible to lose money by investing in the fund.

Typically offering higher rates of return than traditional bank deposit accounts, money market mutual funds provide an element of stability and can help diversify your portfolio. Money market investments generally have a high credit quality. Credit quality is determined by a number of independent agencies, including Standard & Poor’s and Moody’s, who examine the issuer’s risk of default. Money market investments typically have little risk of not being able to repay their debt. Because of this high quality, they are considered low-risk, conservative investments.

Investing too heavily in money market funds, however, can hurt your potential for long-term growth. Because money market returns tend to just keep pace with inflation before taking taxes into account, investments in money market mutual funds can actually lose purchasing power after income taxes once annual returns are factored in.

What are mutual funds?

Mutual funds are pools of securities, which typically offer diversification within one or more asset classes to spread the risk.4 Mutual funds are run by professionals, who oversee the funds on behalf of shareholders.

In general, people invest in mutual funds in order to achieve diversification without the complexity of managing a large number of stocks and bonds. By their very nature, mutual funds can offer diversification that may help reduce risk while potentially increasing the overall return potential of the investment. The idea is that if one security held by a mutual fund loses value, another security may rise in value, offsetting the loss. While there is no guarantee, diversification is a strategy to help manage risk in a portfolio.

There are many types of stock funds, including:

  • Growth funds, which primarily invest in companies whose earnings are the market projects to increase faster than the overall market.
  • Value funds, which typically focus on stocks that the portfolio manager believes are selling for less than they are worth.

Funds are also categorized by their market value, known as capitalization (the price of a share multiplied by the number of shares outstanding). Common categories include small-cap, mid-cap, and large-cap.

Bond funds invest in bonds issued by government agencies and corporations. Unlike direct bond investments, these funds do not mature, so your principal will not be repaid unless you sell your fund holdings. They also do not offer guaranteed interest payments. Bond funds may lose value if interest rates rise, but in general they are less risky than many types of stock funds.

Ultimately, you'll want to choose a mutual fund (or funds) with the potential to complement your financial goals, risk tolerance, and time horizon. The longer your money will stay invested, the more opportunity you will have to ride out periods of volatility. Generally, the closer you come to the time when you will need the money, the less risk you will want to take.

Mutual funds are subject to fluctuation in value and market risk including loss of principal.

What are ETFs?

An exchange-traded fund (ETF) is a basket of securities, shares of which are sold on an exchange. They combine features and potential benefits of stocks and mutual funds. Like individual stocks, ETF shares are traded throughout the day at prices that change based on supply and demand. Like mutual fund shares, ETF shares represent partial ownership of a portfolio that's assembled by professional managers.

ETFs offer a number of potential advantages, including the following.

  • ETFs may be more tax efficient than some traditional mutual funds. A mutual fund manager may trade stocks to satisfy investor redemptions or to pursue the fund's objectives. Selling shares may create taxable gains for the fund's shareholders. In addition, managers of index-based ETFs generally only make trades to match changes in their index, which may mean greater tax efficiency.
  • Like stocks, ETFs are sold at real-time prices and trade throughout the day. Mutual funds, on the other hand, do not have this flexibility: Their pricing is based on end-of-day trading prices.
  • An ETF may be a good way to add diversification to your portfolio. Buying shares of a technology sector ETF, for example, could potentially be less risky than purchasing shares of one technology stock -- an ETF may own shares of many different technology companies.

Understanding asset allocation and diversification

Asset allocation is the way you “weight” investments in your portfolio -- the percentage of your overall investment placed in each category, known as an investment class.6

There are three main asset classes: stocks, bonds, and money market securities. Each has its own characteristics in terms of value fluctuation, level of market risk, and potential to outpace inflation. Which asset classes you decide to invest in depends on how your investment time frame and goals match up with the risks and return potential of the various asset classes.

The concept of diversification -- the process of investing in different types of funds or securities in order to reduce risk -- is an important part of asset allocation.6 Diversifying among different asset classes increases the chance that as one investment is falling in value, another may be rising. A mix of assets may help position your portfolio to benefit during market upswings, while suffering less during downturns.

If you have sufficient capital, you can also diversify among investment styles to help address risk. Active and passive investing are the two most basic investment styles.

  • Active investors and fund managers believe that strategic buying and selling of stocks has a strong potential to outperform the market
  • Passive investors and fund managers have greater faith in the long-term success of the overall market and so follow a more general “buy and hold” approach

Active investors are further divided into:

  • Growth – typically investing in well-established companies they believe have strong earnings potential
  • Value – typically investing in companies that may have fallen out of favor but that they believe will bounce back

Many investors combine investment styles to potentially gain through different market cycles that favor different approaches.

The benefits of investing in tax-deferred accounts

One option for working toward long-term financial security in retirement is investing in an employer-sponsored retirement plan such as a 401(k), 403(b), or 457 plan, if offered by your employer.

These tax-advantaged plans allow you to make pre-tax contributions. For example, let’s assume that you make $2,000 a month and contribute $200 to your employer-sponsored retirement plan. That pre-tax contribution would reduce your taxes from $500 to $450.1 Additionally, taxes aren't owed on any earnings until they're withdrawn at retirement, when you may be in a lower tax bracket.

If a 401(k) or similar plan isn't available at your workplace, consider a traditional IRA. Generally, contributions to and income earned on traditional IRAs are tax-deferred until retirement. Note that certain eligibility requirements apply and nonqualified taxable withdrawals made before age 59½ are subject to a 10% penalty.

If you fund a traditional IRA and don’t have access to an employer-sponsored retirement plan, you may be able to deduct all or part of your contribution on your taxes and also may be eligible for a tax credit. If you fund an IRA and also have access to an employer-sponsored retirement plan, you also may be able to deduct all or part of your contribution on your taxes, depending on how much you contributed to your employer plan.

Finding the right investments for you

Before making investment decisions, carefully determine if each investment is a “suitable” –appropriate in terms of your willingness and ability to take on a its level of risk. It is essential that these criteria be met. It is also necessary to understand the nature of the risks and the possible consequences.

Among the questions to ask before you invest:

  • Does this investment match your long-term investment goals?
  • Do you understand all costs, fees, and commissions?
  • What are the risks to this investment?
  • How do other alternative products compare in risk, return, and expenses?

Investing can sound complicated. But each step you take can bring you closer to your goals. Working with a qualified financial professional may help. A qualified financial professional is trained to analyze your personal financial situation, including assessing your risk tolerance, analyzing your resources and current asset allocation, and much more.

With professional guidance, you can develop a plan to help ensure that your current and future assets are used to their best advantage given your current financial situation and your financial goals.

* Exchange-traded funds (ETFs) are subject to market risk, including the possible loss of principal. The value of the portfolio will fluctuate with the value of the underlying securities. ETFs trade like a stock, and there will be brokerage commissions associated with buying and selling ETFs unless trading occurs in a fee-based account. ETFs may trade for less than their net asset value. Additional risks of ETFs include lack of diversification, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking error.

** Asset allocation and diversification do not ensure a profit or protect against a loss.

Please consider the charges, risks, expenses and investment objectives carefully before purchasing a mutual fund or exchange-traded fund. For a prospectus containing this and other information, please contact a financial professional. Read it carefully before you invest or send money.

AXA Equitable Life Insurance Company (New York, NY) issues life insurance and annuity products. Securities offered through AXA Advisors, LLC, member FINRA, SIPC. AXA Equitable Life Insurance Company and AXA Advisors are affiliated and do not provide tax or legal advice.

GE 91296 (01/2014)