Growth or value, big or small?

How do the stock funds in my 401(k) differ?

Your fund offerings probably have their own unique brand names, but in your plan’s literature, there are some common descriptive terms you’ll find. Here’s what these terms mean.

The first differentiation is growth or value. Growth funds invest in companies growing at a faster-than-average rate, whereas value funds seek to find undervalued, established companies. Generally speaking, growth stock funds are more volatile but also have higher long-term return potential. Funds labeled “blend” invest in a combination of the two.

Next is the size of the companies the fund invests in, which is often listed as “large-cap,” “midcap,” or “small-cap.” While there is no set-in-stone rule, large-cap companies are usually those with market capitalizations (values) of $10 billion or more, mid-caps are companies worth between $2 billion and $10 billion, and smallcaps are companies worth less than $2 billion.

Also, some of your funds may be labeled “global,” “international” or “emerging markets.” Most of your 401(k)’s funds are likely invested in U.S.-based companies. Global funds invest in companies in the U.S. as well as foreign countries around the world. International funds invest in foreign stocks and specifically exclude the U.S. Emerging-market funds invest in stocks based in countries with developing economies, such as Brazil and China.