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Types of Mutual Funds
Over 50% of Americans, mostly through their 401k's, have invested in the mutual fund market. Industry assets have reached $8 trillion in 2005, almost double from 5 years ago.
Mutual funds vary based on a number of factors, including:
- Investment objective: such as growth vs. preservation
of principal.
- Investment style: such as rapidly growing vs. undervalued
by the market.
- Investment strategy: such as a passively managed
index vs. actively managed individual company analysis.
Money-Market Funds
- Seek to preserve price stability at a value of $1 per
share.
- Invest in short-term IOUs from industry and government
agencies.
- Generally accrue dividends daily and credit them monthly.
Income or Bond Funds
- Seek high current income.
- Invest in securities that pay both dividends and interest.
- Some invest in a variety of bonds; others specialize in
only one type.
Stock Funds
- Growth stock funds invest in securities with high growth
potential.
- Value stock funds invest in securities that, for one reason
or another, are ignored or are selling at an unusually low
price compared to true market value.
- Balanced stock portfolios invest in both growth and value
stock funds.
- Growth funds tend to invest in large, well-established
companies.
- Aggressive growth funds tend to invest in smaller, riskier
companies believed to be on the fast track.
- Funds may invest in small, mid, or large cap stocks or
any combination thereof.
Balanced Funds
- Divide investments among stock, bond, and cash investments.
- Generally invest in higher-grade securities.
- Are ideal for investors seeking moderate returns and low
risk.
International and Global Funds
- Provide access to securities outside of the U.S.
- International funds invest solely in non-U.S. securities.
- Global funds invest in securities in foreign and U.S.
securities.
Specialized or Sector Funds
- Concentrate on a particular industry or country/region.
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