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Mutual Funds
Finding Investment Balance with Mutual Funds
By Belinda Clarke
Higher Risk
If you are an investor who is willing to assume a higher level of volatility, you might select an aggressive growth fund such as stock in an upstart company with the potential for rapid growth. This type of fund may have a greater chance of return, but with higher volatility. Generally, these high-risk funds fall in the category of Stock Funds, which include a wide variety of funds whose gains may come from small portfolios of 50 or fewer stocks to larger funds containing hundreds of stocks.
Moderate Risk
A mid-risk category fund invests in both stocks and bonds to help cushion the fund's volatility during market downswings. Examples of these medium-risk funds are Income Funds and Balanced Funds.
Low Risk
Investors looking for an investment with less risk may opt to invest in a capital preservation fund. Money market funds, such as CDs, T-bills and bond funds, which gain interest from government and/or corporate bonds, provide lower returns but have minimal risk. In addition, pooling an investment in a money market fund allows investors to take advantage of the current market interest rates paid on money market securities. Owning shares in a money market fund via a mutual fund allows individual investors the opportunity to get the same rewards as those large institutions get on the same securities.
The key benefit of mutual funds is diversification, ad regardless of which risk category an investor wishes to place herself, a diversified portfolio reduces risk overall should some investments in the fund perform poorly. It also increases the chance of acquiring winners.
