As an investor you have the opportunity to choose from a variety of different types of mutual funds. Each type has varying levels of risk and opportunity.
Mutual funds are a type of investment vehicle that allows you to combine resources with other investors for the purposes of making investments in securities such as stocks, bonds, commodities and sometimes other types of alternative assets. Essentially, these investment vehicles are funds which are managed by a professional financial expert who makes investment decisions based upon the mutual fund’s prospectus. Each prospectus will determine a certain risk profile, financial goals and specified types of asset purchases that the fund manager will adhere to.
The advantage of mutual funds is that they allow you access to a professional fund manager without large amounts of money. There are several different types of mutual funds that you can choose from.
Equity funds
The most common type of mutual fund is the equity fund which invests in mostly stocks.
Fixed-income funds
Another type of mutual fund are fixed-income funds which focus on investing in assets that provide consistent income streams via interest payments. These assets usually include government bonds, corporate bonds and other similar debt vehicles.
Index funds
This type of fund will invest in stocks with the aim of tracking the movements of specified stock indices, such as the Dow Jones Industrial Average or the S&P 500.
Balanced funds
Investors who want a broad-based allocation across various asset classes may want to consider balanced funds. The types of asset classes invested in may include stocks, bonds, money market instruments and a variety of alternative assets.
Money market funds
More conservative and risk-averse investors may prefer money market funds. This type of fund invests in short-term debt investment vehicles, consisting mostly of government Treasury bills.
Income funds
The objective of income funds is self-explanatory: to create a steady stream of low-risk income to investors. This type of fund invests in mostly government debt and high-quality corporate bonds.
International/global funds
An international fund invests in assets based outside of your home country. On the other hand, a global fund will invest all over the world, including in your home nation.
Specialty funds
These types of funds will concentrate specifically on particular economic sectors or they may target companies with a particular type of business strategy. Some of the economic sectors specialty funds commonly target are technology, medical and financials.
Exchanged traded funds
Based upon the general structure of mutual funds, exchange traded funds (ETFs) are curated groups of stocks and securities that are meant to track the movements of specific indices, economic performance of certain geographic areas or particular industries. ETFs allow investors to control a broad range of assets with a single market position.
Which type of mutual fund is best for you?
Each type of mutual fund has its own advantages and disadvantages. The type of mutual fund you should choose will depend on what you are trying to accomplish through investing. There are types of funds that are more suited for more aggressive investors and others that are better for conservative investors looking to avoid taking too much risk. Your wealth management advisor can help you sort through all of the options.
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All investments and strategies have the potential for profit or loss. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. There are no assurances that an investor’s portfolio will match or exceed a specific benchmark.
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The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.
Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly.
The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal.
The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.
Investors should carefully consider the investment objectives, risks, charges and expenses of mutual funds. The prospectus contains this and other information about mutual funds. The prospectus is available from our office [or from the fund company] and should be read carefully.
