You’re thinking of investing in a mutual fund,¹ but with several types to choose from, how do you select one? For starters, you’ll want to invest in a fund with an investment strategy that matches your own goals.
Here’s a look at some common mutual fund types. Which ones reflect your investment goals?
Take Stock of Stock Funds
Stock funds own shares in many different companies. Each fund manager chooses investments with a particular investment goal in mind. Growth funds look for companies with the potential for capital growth. Aggressive growth funds buy shares in companies that may experience sudden rapid growth and volatile prices. Growth and income funds seek modest growth and dividend earnings. Sector funds buy shares in companies within a specific industry.
You also can buy shares in a fund based on company size. Small-cap funds invest in small companies whose stock prices may be volatile. Mid-cap funds invest in medium-size companies that have the potential for growth with less volatility than small-cap funds. Large-cap funds hold shares in large, established companies that tend to pay dividends.
Bonds for Balance
Corporate bond funds² usually buy bonds issued by several different companies with the goal of generating income. Income funds typically invest in corporate and/or government bonds. Tax-free bond funds hold municipal bonds that pay interest that isn’t subject to regular federal income tax and may be state tax free to in-state residents. Junk bond funds buy bonds issued by companies with lower credit ratings and a greater risk of default. These funds generally pay a higher yield than other types of bond funds but are riskier.
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