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 before.
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.
- 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.
- 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.
- 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.