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1 [1] (May 24, 2024)

handle is hein.crs/govepdv0001 and id is 1 raw text is: Congressional Research Service Informinq the IegisI9tive debate s~nco 1914 0 May 24, 2024 Americans' Investment Options in Capital Markets for Retirement One of the main ways Americans prepare for retirement is to invest in various financial assets. Their investment options include investing directly in stocks, bonds, and investment funds through individual brokerage accounts and investing indirectly through pension funds that invest on behalf of employees. This In Focus examines certain investment options related to retirement preparedness and provides CRS resources on investment management and regulation. CRS does not take a position on the relative merits of particular investments and does not offer or endorse specific investment advice. Drect and Indrect nvestments According to the Federal Reserve's 2022 Survey of Consumer Finances, close to all American families own some form of financial assets, such as bank accounts, certificates of deposit, stocks, bonds, investment funds, cash value life insurance, retirement accounts, savings bonds, and other financial assets. This In Focus covers investments in capital markets and securities, such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), and digital assets. The investments in these types of instruments could be direct-meaning held in accounts and controlled generally without restriction by the individuals themselves (e.g., in individual brokerage accounts)-or indirect-meaning through a claim to a pension fund that invests on behalf of individuals or certain retirement accounts with access restrictions and investment options selected by plan sponsors, such as 401(k) plans. While defined contribution retirement plans, including 401(k) plans, normally provide some investment choices for individual decisionmaking, pension funds generally have their fund sponsors act as institutional investors in selecting investment instruments and conducting transactions on behalf of plan participants. An investment's classification in securities regulations as public or private plays a significant role in how accessible an investment is for direct ownership. Federal securities regulation requires offers and sales of securities, such as stocks and bonds, to be either registered with the Securities and Exchange Commission (SEC) or undertaken pursuant to specific exemptions. Registered offerings, often called public offerings, are available to all types of investors. By contrast, securities offerings that are exempt from certain registration requirements are referred to as private offerings and are generally available only to accredited investors-institutions or individual investors who meet certain net worth, income, or technical expertise thresholds. Thus, while non-accredited individual investors can take direct ownership of public securities, they can generally gain only indirect exposure to private securities markets through certain institutional investors, such as pension funds. Investment Options Americans' investment options in capital markets and securities that would generally be available both directly or indirectly include the following instruments if they are publicly traded pursuant to related SEC regulatory requirements: (a) stocks, also called equities or shares, referring to ownership of a firm; (b) bonds, also called fixed income or debt securities, referring to the debt of a firm or a government entity (e.g., corporate bonds and U.S. Treasury securities); (c) mutual funds, also called open- ended funds, referring to a type of public fund that provides continual offering of shares and daily redemptions; (d) closed-end funds, which are publicly traded investment funds that sell a limited number of shares rather than continually offering them; (e) exchange-traded funds, which are investment funds that combine features of both mutual funds and closed-end funds, allowing investors to pool their money into funds with continual share offerings that can also trade on exchanges like a stock; and (f) digital assets, such as cryptocurrencies, referring to digital representations of value. Investments that are generally available only indirectly to non-accredited investors through institutional investors such as pension funds and certain insurance products include (a) private equity, referring to pooled investment vehicles that typically concentrate on investments not offered to the public, such as ownership stakes in privately held companies; (b) private credit, including direct lending, referring to lending undertaken by nonbank financial institutions and made to small and medium-size private companies that are not publicly traded; (c) venture capital, referring to startup financing for early stage, high- potential firms, such as high-tech startups; and (d) hedge funds, referring to asset management vehicles that generally pool accredited investors' money and invest it on their behalf for a fee and are often identified by their complex investment strategies relative to other conventional funds. See CRS Resources on Investments section for more details on the investment options mentioned above. nvestment Risks and Returns The various investment instruments contain different levels of risks and returns. In well-functioning capital markets, the higher the risks, the higher the expected returns for investors. Typical investment risks include the safety of assets, possibilities of issuer defaults, market volatility, interest rate fluctuation, and liquidity (i.e., how readily and quickly investors could get their money back without affecting the price). For example, Figure 1 illustrates

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