There are many ways to invest your money for the future. One of the most effective types of investments is the securities market. However, doing this yourself will require significant knowledge about how markets function and economic theory. It can also be time-consuming having to keep up with the relentless stream of market-moving news releases.
This is where mutual funds can become useful. These investment vehicles pool together funds from multiple investors with the aim of putting the funds into the markets to earn a return for contributing investors. Mutual funds are managed by financial professionals who have the expertise to competently invest your capital in accordance with a prospectus which outlines financial goals and risk guidelines.
There are various types of mutual funds you can choose from.
If you are looking to specifically invest in stocks, then an equity fund might be best for you. This type of mutual fund invests specifically in stocks.
These are mutual funds that specialize in investing in assets which provide a stream of income from interest payments. Generally, this means investing in corporate bonds, government bonds and other debt-driven investment assets.
Mutual funds that aim to track price fluctuations and movements of specific stock indices are referred to as index funds. For example, an index fund may be designed to follow the movements of the S&P 500 or Dow Jones Industrial Average.
If you are looking to have your capital invested in a wide range of asset classes, then balanced funds may be the best type of mutual fund for you. Balanced funds allocate capital into stocks, bonds, money market vehicles along with some alternative assets.
Money market funds
Those who are not comfortable taking risk in volatile markets may want to consider putting their funds into a money market fund. This type of mutual fund focuses on short-term debt instruments as an investment strategy. The majority of the investments will be in U.S. Treasury bills.
This type of mutual fund’s goal is to provide you with a steady income stream through low-risk investments. High-quality corporate bonds and government debt instruments make up most of the investments typically made by an income fund.
International and global funds
If you are looking to gain investment exposure to the economy outside of your home country, you should consider an international fund concentrating on these types of assets. Alternatively, global funds will also invest internationally, but may also include assets inside of your home country as well.
Many investors prefer specialty funds which concentrate investments into a specific economic sector, such as technology, medical and financial. Specialty funds may also be designed to invest in corporations with particular types of business models.
Exchange traded funds
This type of fund is designed similar to the general structure of mutual funds while allowing investors to invest in a wide array of assets through a single position in the market. Exchange traded funds (ETFs) are made up of carefully selected groups of assets that are aimed at tracking specified indices, specific industries, or the economic performance of particular geographic areas.
What type of mutual fund should you invest in?
You should first understand what your financial goals are when investing before you decide what type of mutual fund might be best for you. Some funds will have the potential for faster returns but may come with increased risk while others may be the other way around with modest returns but low risk. Please check with us to better understand how mutual funds might be of benefit to you.
Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. There are additional risks associated with investing in an individual sector, including limited diversification. Opinions expressed are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice.