Types of Investments
Creating a diversified portfolio takes all kinds of investments. By understanding what’s available, you can decide which ones work for you.
What is a mutual fund?
Mutual funds pool money from many investors to purchase a broad range of investments, such as stocks, bonds, cash, or other types of securities. They’re an efficient way to begin investing and building a portfolio.
How a mutual fund works
Mutual funds can be an efficient, cost-effective way to invest. When you make an investment in a fund, you purchase shares of the fund, which means you own a portion of all of the underlying investments. A mutual fund can help provide built-in diversification, professional management, and ongoing supervision of the fund’s holdings—all important elements of a well-rounded investment program.
|Type||How it works||May be a good option for|
|Mutual fund strategies|
|Index fund||Attempts to mimic the performance of a specific market index, such as the S&P 500® Index or the Wilshire 5000 Index.||First-time and seasoned investors who want broad market exposure and lower fees than those offered by actively managed funds.|
|Actively managed fund||Professional managers choose what they believe are the best investment opportunities, given a fund’s strategy, with the goal of outperforming a specific benchmark.||Those who want a professional manager’s investing experience and skills.|
|Mutual fund offerings|
|Stock (or equity) fund||Invests in U.S. and/or international stocks. These funds offer the potential for long-term growth and have varying risk levels.||First-time and seasoned investors who have a longer-term horizon.|
|Bond fund||Invests in either taxable or tax-free corporate, municipal, or government bonds.||Those looking for income or those who want a more conservative alternative to equity funds.|
|Blended or balanced fund||Invests in a mix of stocks and bonds with the goal of achieving both investment growth and income.||First-time and seasoned investors seeking a more diversified solution.|
|Target-date or life-cycle fund||May hold a mix of stocks and bonds, and automatically shifts its asset allocation as the date you need the money (when you retire, for example) draws near. The funds are built for investors who expect to start gradual withdrawals of fund assets on the target date, to begin covering expenses in retirement. The principal value of the funds is not guaranteed at any time.||Retirement investing and automatic rebalancing.|
There are three ways for you to make money in a fund. The fund may earn income from dividends on stocks and interest on bonds, which is passed along to shareholders. In addition, if a fund sells securities that have increased in price, it has a capital gain that’s paid out in the form of a distribution. Finally, if a fund’s share price, or net asset value (NAV), increases during the time you own it and you sell your shares, you earn a profit.
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