One of the great advantages to investing in mutual funds is that with one investment transaction, you are invested in several different assets. This makes life easier for the investor who doesn’t have a lot of time to research many companies to add to his portfolio. In order to ensure that all of the assets in your mutual fund are appropriate for your investment goals, mutual funds are categorized by type. Here’s a basic overview of the different categories of mutual funds that invest in stocks so that you can pick the type of stock mutual fund that best suits your investment goals.
– These mutual funds invest in companies who are expected to grow quickly. These are companies who typically do not pay dividends to investors, but who invest their income back into the company. These mutual funds can be somewhat risky, because the companies can have losses. However, if your investment goals are to grow your money, and you have a few years to allow your money to weather the good and bad years, this is often the way to make the most money over the long haul.
– These mutual funds are attractive because of the cost of the stocks that are purchased within the fund. Value funds purchase stocks that are inexpensive compared to other stocks, as compared by price to earnings ratio or price to book ratio. Rather than focusing on companies that have a high stock price to get into but are expected to grow rapidly, you’ll be investing in stocks that are less expensive to get into, so you’ll own more shares. However, they may not grow as quickly.
– These mutual funds invest in very stable companies that pay dividends on a regular basis. Rather than investing in new companies or new industries as you might in growth funds, you’ll be investing in some of the largest and most established companies on the market. You’ll get dividends each quarter, which is why this type of mutual fund is great for the older investor, who needs income from his investments for everyday living. These mutual funds have lower risk than growth funds.
– These are mutual funds that invest in one particular sector of the market, such as pharmaceuticals, for example. With this type of mutual fund, you’ll be investing in some of the hottest companies in the sector you choose. These mutual funds can be safe or risky depending upon your sector of choice. For example, those who invested in telecom sector funds a few years ago had a great ride for a while, but then the telecom market plummeted, leaving many of these funds worth far less than they had been at one time.
– These mutual funds specialize in investing in foreign companies. This means that all the stocks in these funds are in companies that are registered outside the US. This type of fund is great for the investor who is particularly interested in protecting his investments through diversification, because foreign stocks are not as subject to the volatility of the American market.
Investing in mutual funds can be a great way to make your money work for you. Choose the mutual funds that complement your personal investment goals and you’ll be well on your way to growing and protecting your money.