Kinds Of Mutual Fund Investing
Investing in mutual funds is an excellent way to diversify your investments. There are many different kinds of mutual funds, and many different ways to classify mutual funds. This is an explanation of just a few different kinds of mutual funds.
The Potted Plant Analogy
When you think of mutual fund investing, think of your mutual fund as a potted plant. The fund itself is a clay pot full of potting soil. The soil is made up of various components and nutrients. Your investment is the plant. When the components of the soil are good, the plant grows. When the soil lacks something, the plant withers, and dead wood must be pruned off.
Investors track mutual fund performance so they can tell if the plant is getting healthier or weaker. If the plant withers because the soil goes bad, mutual fund managers change the makeup of the soil to try to restore good health.
So Many To Choose From
What follows is a list of just a few of the different blends of individual investments that you will find in mutual funds. The makeup of mutual funds varies because each fund manager is a unique individual.
Bond funds - the mutual fund contains bonds only. Experts in mutual fund investing generally advise that bonds are lower risk than other kinds of mutual funds.
Mixed Funds - most investors prefer investing in mutual funds that contain a blend of bonds and shares of stocks.
Share Funds - the mutual fund contains shares of stock in publicly traded companies only. The risk is much higher than mutual fund investing in bond funds, but the rewards can be much greater in the form of high profits - a very healthy plant. Among share mutual funds, there is a great deal of diversity in various funds:
International mutual funds contain shares of companies that trade on the foreign markets.
Domestic mutual funds contain shares of companies that trade only in the United States.
Small cap funds contain shares of companies with capitalization under a certain dollar amount.
Large cap funds contain shares of companies with capitalization over a certain dollar amount.
Sector funds contain shares of companies in a certain line of business. For example, some investors prefer investing in mutual funds in the health care industry, with a portfolio of shares in pharmaceutical and managed care companies. The hottest trend in sector funds is green funds: mutual fund portfolios based on companies that are involved in the environmental industry. These funds include shares of companies operating in the fields of wind power, solar power, hybrid vehicle development, geothermal energy harvesting, earth-friendly construction materials, recycling and waste management.
