Wealth &
Protection Planning

Mutual Funds

A mutual fund is a portfolio of stocks, bonds, and other securities owned by a group of investors and managed by a professional investment company.  These pooled investments offer investors the advantages of diversification and professional management.  Investors should be aware that mutual funds are not guaranteed and their value can fluctuate.  Although a fund may hold a large number of different securities, that diversification cannot eliminate the risk of investment loss. 

Shareholders are rewarded for their ownership in the funds through increases in share price, as well as through distributions of dividends and capital gains.  All shareholders of the fund share equally in all profits or losses generated by that fund.  At any time, a shareholder can redeem shares of the fund or exchange his or her shares into another fund within the fund family.  The investment company earns money by charging administrative and management fees for managing each portfolio.  Each mutual fund is required to give an investor a prospectus, which contains more complete information about the fund, its expenses and charges.  Investors are encouraged to read the prospectus carefully before making any investment decision. 

The biggest challenge for investors is determining which fund is best suited for their particular financial situations and goals.  Mutual funds range from the more risky aggressive growth funds that seek capital appreciation to the more conservative bond and money markets funds that seek current income and preservation of capital.  The types of mutual funds are:

Stock Funds

Stock funds invest primarily in the stocks of domestic and foreign companies.  Historically, stock and stock funds have proven to be one of the best investments for financial growth over the long term.  However, this growth can be coupled with a substantial amount of risk and market fluctuation.  Stock funds can be further classified depending on the amount of risk to be taken on.  The breakdown of these funds by risk tolerance and growth potential are:

  • Aggressive growth funds
  • Growth funds
  • Growth and income funds
  • Income funds
Bond Funds

Bond funds invest primarily in bonds.  Bond funds may invest in all types of bonds including corporate, government, and municipal.  The value of bond funds will fluctuate based on short- or long-term interest rate changes, but generally they may be less volatile than stock funds, and often can produce monthly income.  The income from municipal bond funds is usually federally tax-free and may be state tax-free as well. 

Money Markets

Money market funds invest primarily in short-term, interest-bearing securities and are issued predominantly by the U.S. government.  The objective of a money market fund is to preserve the value of the investment by trying to maintain a stable dollar per share value, while still earning monthly income.  Money market funds are not guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.  Although they seek to preserve a stable share price, it is possible to lose money in a fund.  Money market funds can provide taxable or tax-free income depending on the securities portfolio of the fund. 

International Funds

International funds invest primarily in the stocks and bonds of foreign companies on the foreign securities markets.  These funds have the risks of traditional domestic funds, as well as several other types of risks.  First, these usually transact business in the foreign countries' currencies, making the investments subject to fluctuations due to changes in the currency exchange rates.  Also, there are risks associated with the ongoing governmental and social changes of the international community.  Although these international funds do have added risks, they also have the potential to achieve greater returns.  Before investing in any funds, investors should evaluate their own risk tolerance, investment objectives, and financial situation. 

Contact a STRIVE Wealth Advisor for more information about mutual funds. 

privacy policy