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May 24, 2024
Americans’ Investment Options in Capital Markets for
Retirement
One of the main ways Americans prepare for retirement is
through certain institutional investors, such as pension
to invest in various financial assets. Their investment
funds.
options include investing directly in stocks, bonds, and
investment funds through individual brokerage accounts
Investment Options
and investing indirectly through pension funds that invest
Americans’ investment options in capital markets and
on behalf of employees. This In Focus examines certain
securities that would generally be available both directly or
investment options related to retirement preparedness and
indirectly include the following instruments if they are
provides CRS resources on investment management and
publicly traded pursuant to related SEC regulatory
regulation. CRS does not take a position on the relative
requirements: (a) stocks, also called equities or shares,
merits of particular investments and does not offer or
referring to ownership of a firm; (b) bonds, also called
endorse specific investment advice.
fixed income or debt securities, referring to the debt of a
firm or a government entity (e.g., corporate bonds and U.S.
Direct and Indirect Investments
Treasury securities); (c) mutual funds, also called open-
According to the Federal Reserve’s 2022 Survey of
ended funds, referring to a type of public fund that provides
Consumer Finances, close to all American families own
continual offering of shares and daily redemptions; (d)
some form of financial assets, such as bank accounts,
closed-end funds, which are publicly traded investment
certificates of deposit, stocks, bonds, investment funds,
funds that sell a limited number of shares rather than
cash value life insurance, retirement accounts, savings
continually offering them; (e) exchange-traded funds,
bonds, and other financial assets. This In Focus covers
which are investment funds that combine features of both
investments in capital markets and securities, such as
mutual funds and closed-end funds, allowing investors to
stocks, bonds, mutual funds, exchange-traded funds (ETFs),
pool their money into funds with continual share offerings
and digital assets. The investments in these types of
that can also trade on exchanges like a stock; and (f) digital
instruments could be direct—meaning held in accounts and
assets, such as cryptocurrencies, referring to digital
controlled generally without restriction by the individuals
representations of value.
themselves (e.g., in individual brokerage accounts)—or
indirect—meaning through a claim to a pension fund that
Investments that are generally available only indirectly to
invests on behalf of individuals or certain retirement
non-accredited investors through institutional investors
accounts with access restrictions and investment options
such as pension funds and certain insurance products
selected by plan sponsors, such as 401(k) plans. While
include (a) private equity, referring to pooled investment
defined contribution retirement plans, including 401(k)
vehicles that typically concentrate on investments not
plans, normally provide some investment choices for
offered to the public, such as ownership stakes in privately
individual decisionmaking, pension funds generally have
held companies; (b) private credit, including direct
their fund sponsors act as institutional investors in selecting
lending, referring to lending undertaken by nonbank
investment instruments and conducting transactions on
financial institutions and made to small and medium-size
behalf of plan participants.
private companies that are not publicly traded; (c) venture
capital, referring to startup financing for early stage, high-
An investment’s classification in securities regulations as
potential firms, such as high-tech startups; and (d) hedge
public or private plays a significant role in how accessible
funds, referring to asset management vehicles that
an investment is for direct ownership. Federal securities
generally pool accredited investors’ money and invest it on
regulation requires offers and sales of securities, such as
their behalf for a fee and are often identified by their
stocks and bonds, to be either registered with the Securities
complex investment strategies relative to other conventional
and Exchange Commission (SEC) or undertaken pursuant
funds. See “CRS Resources on Investments” section for
to specific exemptions. Registered offerings, often called
more details on the investment options mentioned above.
public offerings, are available to all types of investors. By
contrast, securities offerings that are exempt from certain
Investment Risks and Returns
registration requirements are referred to as private
The various investment instruments contain different levels
offerings and are generally available only to accredited
of risks and returns. In well-functioning capital markets, the
investors—institutions or individual investors who meet
higher the risks, the higher the expected returns for
certain net worth, income, or technical expertise thresholds.
investors. Typical investment risks include the safety of
Thus, while non-accredited individual investors can take
assets, possibilities of issuer defaults, market volatility,
direct ownership of public securities, they can generally
interest rate fluctuation, and liquidity (i.e., how readily and
gain only indirect exposure to private securities markets
quickly investors could get their money back without
affecting the price). For example, Figure 1 illustrates
https://crsreports.congress.gov