Whether you're new to the world of investing or a seasoned investor looking for new ways to diversify your portfolio, mutual funds can be a valuable part of any financial strategy. But while most people have heard of mutual funds, many don't know much about them beyond the name.
In fact, the term 'mutual fund' simply refers to a managed investment that pools a group of investors' resources to buy securities in bundles. You get the benefit of a larger pool of money and can purchase in fractions that you wouldn't be able to on your own. Within the mutual fund world, though, there are different types of funds. Here is an introduction to the most common types you'll encounter.
1. Open- and Closed-End Funds. Most investors will regularly encounter only open-end funds, which have no expiration date. This means that you can continue to purchase them indefinitely, whereas closed-end funds will stop being offered at a set time.
2. Target-Date Funds. Retirement investors have a modern option to help them save for the future with a target retirement date in mind. Target-date funds are specifically designed to create the right balance between risk and reward — generally based on your age and when you plan to retire.
3. Specialty Asset Funds. Just like target-date funds have a particular goal, specialty asset funds focus on one type of investment. For instance, this could be REITs (real estate investment), certain commodities, all stocks, or all bonds. Specialty funds should be used to beef up your exposure to an asset type not well covered in other investments or one that you feel might be ready to break out.
4. Growth and Value Funds. Again, this type of mutual fund has a more specific goal than some other funds. Both growth and value funds boost your capital by targeting opportunities for increased growth. Value funds invest in undervalued stocks and securities — those whose market pricing is lower than the stock's value. Think of these as stocks offered on sale. Growth funds look for stocks in companies that are about to grow significantly and are likely to pay bigger dividends, among other opportunities.
5. Small-, Mid-, and Large-Cap Funds. This type of fund is centered on companies of a particular size. Each category of size and reach provides unique opportunities, such as the higher rewards for taking on small companies' riskier stocks.
Clearly, you can find mutual funds that fit exactly your goals, risk tolerance, and timeline. Want to know more about tailoring your plans to your needs? Meet with an experienced investment manager, such as UAK Diversified LLC., today.
