Definition
Mutual Fund – A mutual fund is an investment vehicle made up of a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments, and similar assets. Mutual funds are professionally managed, and include costs related to compliance, distribution, and administration required for retail investments.
Collective Investment Trust (CIT) – CITs are similar to mutual funds in that they are professionally managed pools of securities, but they are managed exclusively for qualified retirement plans. CITs have different regulators and regulations, and the difference in regulations has a positive impact on the cost of CITs. CITs have lower distribution, advertising, and customer service costs than similar mutual funds, and the cost savings are passed on to participants.
Custom Portfolio – A custom portfolio is a privately managed investment account that may consist of a separate account holding individual securities or a portfolio with multiple investment managers attempting to achieve a customized objective. Like mutual funds, these custom portfolios use pooled money to buy stocks, bonds, money market instruments, and similar assets. They may also invest in multiple mutual funds, collective investment trusts, and separate accounts consistent with the investment policy guidelines of the custom portfolio. Custom portfolios and their underlying components also have different regulators and regulations, and the difference in regulations has a positive impact on the cost of custom portfolios. Custom portfolios are generally not available outside of a retirement plan, and the components of custom portfolios may have lower distribution, advertising, and customer service costs than similar mutual funds (if available), and the cost savings are passed on to participants. Custom portfolios may also be named by their investment strategy (US Large Growth Company Stock), instead of the investment manager’s brand name to highlight the investment strategy.
Types of Investment Options
Type | Name |
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Mutual Fund | Vanguard Capital Opportunity |
Collective Investment Trust | Fidelity Contrafund Commingled Pool Fidelity Growth Company Commingled Pool LifePath Retirement, 2030, 2035, 2040, 2045, 2050, 2055, 2060, and 2065 Portfolios US Bond |
Custom Portfolio | Non-US Company Stock Non-US Company Stock Index US Small Growth Company Stock US Small Value Company Stock US Small/Mid Company Stock Index US Large Growth Company Stock US Large Value Company Stock US Large Company Stock Index US Bond Index Stable Value Option
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Investment Option Comparison
Dividends and Capital Gains Distributions
Regardless of the investment type, investors still receive the benefit of dividends and capital gains distributions. However, these distributions are handled differently in Custom Portfolios and Collective Investment Trusts compared to a mutual fund. In a mutual fund, a dividend is released to a shareholder. In the case of a Custom Portfolio or Collective Investment Trust, the money is immediately used to re-purchase shares of the investments, and the investment manager executes this transaction inside the portfolio itself. Investors are still receiving these dividends and capital gains distributions indirectly. The distributions are reflected in the overall valuation and investment performance of the investment option, rather than a transaction received by the investor, only to be immediately reinvested. The fundamental difference in the accounting of dividends and capital gain distributions at the portfolio level, rather than the shareholder level, is why you no longer see these transactions in your statement. Executing the transaction inside the portfolio is also more efficient and less complicated transaction which further enhances the shareholders’ return in the form of lower portfolio cost.
It is important to note that investors in a retirement plan should not make decisions about investment selection solely based on dividends. When a company pays a dividend to its shareholders, there is a corresponding share price drop by the amount of the dividend. The bigger the payout, the bigger the share price drop. Therefore, the receipt of dividends does not equate to an overall gain for the shareholder.
Consider the investment objectives, risks, charges, and expenses carefully before investing by consulting your prospectuses or fund profile, which contain this and other information. Prospectuses and fund profiles are available by calling 877-644-6457 or visiting Ohio457.org. Read the prospectus or fund profile carefully before investing.
LifePath Portfolios—Each LifePath Portfolio is based on a target year when you expect to begin using your money. Portfolios are designed to provide diversification and asset allocation across several types of investments and asset classes, primarily by investing in underlying investments. LifePath Portfolios are designed for people who plan to begin withdrawing their retirement savings during or near a specific year. Like other investment options, LifePath Portfolios are subject to market risk and loss. Loss of principal can occur at any time, including before, at, or after the target year. There is no guarantee that LifePath Portfolios will provide enough income for retirement.
Non-US Stock—Non-US or international investment options involve risks not associated with investing solely in the United States, such as currency fluctuation, differences in accounting standards, and the limited availability of information. Over the long term, an investor should be willing to accept a high level of risk resulting from potentially higher market volatility.
Small Company Stock—Small company investment options contain stocks from companies with less than $2 billion in capitalization, including many start-up companies. Small companies can grow much faster than big companies, but small company stocks tend to be more volatile than the stocks of larger companies. Over the long term, an investor should be willing to accept a high level of risk resulting from potentially higher market volatility.
Mid Company Stock—Mid company investment options contain stocks from companies with market values between $2 billion and $10 billion, and often include companies that are well established and growing. Over the long term, an investor should be willing to accept a moderate to high level of risk resulting from potentially higher market volatility.
Large Company Stock—Large company investment options contain stocks from companies with market values of more than $10 billion and they include blue-chip and Fortune 500 companies. They are typically more mature, diversified companies with many products and services. Over the long term, an investor should be willing to accept a moderate to high level of risk resulting from potentially higher market volatility.
Bond—Bonds are loans or debt instruments issued by governments or corporations that need to raise money. Bond investment options have the same interest rate, inflation, and credit risks associated with the underlying bonds owned by the investment. Bonds are generally a more conservative form of investment than stocks, and usually provide a steadier flow of income. Typically, bonds have a lower long-term total return than stocks.
Stable Value—These options own short to intermediate-term, high-quality fixed-income securities. Investors who seek safety of principal, as well as a competitive rate of return compared to money market funds, may invest in these options. The Stable Value Option returns are shown net of fees for investment management, custody, and principal protection.