Mutual Funds: Overview of the 3 Basic Types
Why Knowing About Types of Mutual Funds Matters
Investing in any mutual fund puts your money at risk. You may lose some, or all, of the money you invest (your
principal).
The value of a fund goes up and down in value because the securities held by a fund go up and down in value. Thus, your
investment also goes up or down.
Even though there are thousands and thousands of mutual funds, they can be categorized into 3 basic types. Each type has
different investment focus as well as different risks and rewards. Because the nature of the risks and rewards
changes as the overall market and economy changes one of the basic types may perform better in some economic cycles than at other
times.
Like with any investment, in general, the higher the potential return, the higher the risk of loss.
We discuss the basic types of mutual funds along with an overview of where they fit with an investment portfolio and their general risk
and reward issues.
Even if you work with a financial advisor, you should still learn about the different types of mutual funds. Be knowledgable about
what an advisor recommends for you so you can make informed decisions that are in your best interest.
The Basic Types of Mutual Funds
Based on what they invest in, the three basic types of mutual funds are:
- Money market funds — in general, low risk, low return. Dividends are
close to short-term interest rates. Historically, the returns are lower than bond or stock funds.
more details …
- Bond funds (also called fixed income funds) — More risk than with
money market funds, but there are so many different types of bonds that bond funds invest in, risks and
rewards vary considerably with different funds. More details …
- Stock funds — Historically, stocks have performed better over the long term than other types of investments, but
not every type of stock will perform well. There are different types of stock funds, see more details …
Summary of Types of Mutual Funds
These are the most basic types of mutual funds. Within each type are a variety of categories. Be sure to read the additional
detail on other pages because the above short descriptions are meant only as a quick summary.
Next: About Money Market Mutual Funds
