Mutual Fund Types

If you are just considering purchasing mutual funds or trying to decide how to allocate your 401K, you may be wondering about the different types of mutual funds. It can be confusing to choose how to distribute your money if you do not understand the difference between a growth fund and a value fund. Once you understand the difference in the types of funds, you still need to look carefully at the particular fund you choose. You should compare long-term growth, the rate of return, and the fees associated with each fund. It is important to realize that mutual fund is not the same thing as a 401(k). A mutual fund is an investment tool that may be part of your overall investing portfolio and many 401(k)s invest in mutual funds, as well. If you are confused, it is always a good idea to consult with a financial adviser that can look at your individual situation and goals. 

Growth Funds

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A growth fund is a fund that buys stock in companies that are increasing rapidly in value. These funds will then sell the stocks at a profit. The risks with growth funds are much higher than other funds because they buy stocks in companies that are a little bit riskier. These funds have higher fees associated with the fund because the stocks are sold more often. These funds are more aggressive, and as a result, the growth is the greatest over long periods of time. However, this also means that there may be greater short-term risk. If you need to use the money in the next five years, you may want to consider a different type of mutual fund. 

Value Funds

A value fund is a fund that buys stocks when they are undervalued and holds onto them as they grow. This is not a fund where they sell stocks as often. The stocks they purchase usually have good dividends, which is one of the ways that they make money. The fees associated with this account are lower because they hold onto the stocks for a longer period of time. The risks associated with this are much lower. Value funds are considered to be a conservative estimate.

Index Funds

An index fund is a fund that tries to match the growth of the various indexes, such as the NASDAQ or the S&P 500. These funds work in two different ways. Some of the mutual funds hold stocks from all of the companies listed over the index, while others pick and choose a few stocks over the wide spectrum. The fees on these are generally the lowest since the companies do not often sell the stocks.

Blend Funds

A blend fund is a mutual fund that combines its holdings with portions of the other types of funds. They may additionally have other means of investing, as well. The risk is more spread out, but it can also limit the growth potential that is available. It is important that you choose a fund with a good performance record, in order to make the best blend funds investment that you can. More

Choosing the Best Type of Funds for Your Investments

When you are looking for the best fund, you should remember that the key to the stock market is to diversify your portfolio. Although you may start with one type of fund, you may branch out to others. You may also be able to choose the different types of funds you invest in within your 401(k). If you are unsure of how you want to invest, consult with a financial adviser who should be able to explain the ins and outs of investing.