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Being a collection of many stocks, you may have thought that picking a mutual
fund might be easy. Not necessarily... there are over 10,000 mutual funds
to choose from. It is easier to think of mutual funds in categories.
I won't discuss every category because this article is designed for the
beginning investor (read other articles on this site for more in-depth
information on funds).
Money Market Funds
These funds are a great place to park your money. Whether you're storing
money for emergencies, saving for the short-term, or looking for a place to
store cash from the sale of an investment, money market funds are a safe place
to invest. These funds invest in short-term debt instruments and typically
produce interest rates that double what a bank can offer in a checking account
or savings account and rival the returns of a CD (Certificate of Deposit).
The beauty of money market funds is that you can often write checks out of your
account and they provide a high amount of liquidity (ability to cash out
quickly) not found in CD's. These funds are not FDIC insured, but in the
history of money market funds no money market fund has ever folded, yet
many banks have failed and many investors with over $100,000 lost out.
Bond Funds
Bond funds carry more risk than money market funds are often used to produce
income (useful in retirement) or to help stabilize a portfolio
(diversification). The primary types of bond funds are:
- Municipal Bond Funds -uses tax-exempt bonds issued by state and
local governments (these funds are non-taxable).
- Corporate Bond Funds -uses the debt obligations of U.S.
corporations.
- Mortgage-Backed Securities Funds - uses securities
representing residential mortgages.
- U.S. Government Bond Funds -uses U.S. treasury or government
securities.
Another way bond funds are often classified is by maturity, or the
date the borrower (whether it be the bank, the government, a corporation
or an individual) must
pay
back the money
borrowed. Using this
classification bonds are often called short-term bonds, intermediate-term bonds,
or long-term bonds.
Stock Funds
Stocks funds are considered riskier than bond funds (although certain bond funds
can be very risky) and are used for growing your money. Money market funds
and bond funds typically provide returns just a percentage or two above
inflation, but stock funds should do much better over long periods of
time.
Continue with the article to read about different kinds of Stock Funds.
There are many more types of stock funds. Here is a break down of the
most common types:
Strategy Types
- Growth Funds
- Value Funds
- Blend Funds
By size:
- Large-Cap Funds
- MidCap Funds
- Small-Cap Funds
- Micro-Cap Funds
International Funds
- Global Funds
- Foreign Funds
- Country Specific Funds
- Emerging Markets Funds
Sector Funds
Index Funds
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