Funds offer plenty of benefits to busy investors. Here's a quick review of all the different kinds are available.
In simplest terms, mutual funds fall into two broad groupings: stock funds and bond funds. In general, stock funds deliver greater returns over the long term than bond funds. But stock funds are less predictable and more likely to deliver sharp losses as well as gains over relatively short spans of time, leaving short-term investors unsure of how much they'll have when they need their money.
Stock Funds
Stock funds rely on their holdings to rise in value in order to deliver good returns. They are divided based on the kinds of investments they hold.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Aggressive growth. These strive for big profits, generally by investing in small companies and developing industries or by concentrating on volatile issues. Some use speculative techniques, such as trading with borrowed money and short selling. The greater the drive for high profits, the greater the risk.
Growth. These look for long-range capital gains by buying the stocks of companies that supposedly have unique characteristics enabling them to grow faster than inflation.
Growth and income. These funds have much the same objective as growth funds, but they put greater emphasis on capital preservation and try to produce more current dividend income for shareholders. These funds invest in bonds, preferred stocks, and high-yielding common stocks.
Other stock-fund categories are sector funds, which invest in a single industry or economic sector; balanced funds, whose assets include large percentages of both stocks and bonds; and utility funds, which invest in income-heavy utility stocks.
Index Funds
These assemble portfolios designed to track as precisely as possible one or more broad stock or bond index. Funds that track the Standard & Poor’s 500-stock index are perhaps the best known, but there are many others. When the market is moving relentlessly upward, as it did for most of the 1990s, index funds are tough to beat.
International Funds
International funds are U.S.-based but invest in securities of companies traded on foreign exchanges. Global funds reserve the right to mix in some U.S. issues as well. They are good places to be when the value of the dollar is falling because their holdings may be denominated in foreign currencies and investors profit from the favorable exchange rates on those currencies.
Exchange-Traded Funds
Exchange-traded funds (ETFs) own a fixed portfolio of securities and can be bought and sold through a broker any time of the day that the stock market is open. An ETF's portfolio represents a slice of the market — an index, a subsector of an index, or a particular industry. ETFs also come in more varieties than conventional index funds and tend to cost even less than the least costly traditional index fund. However, you have to pay a brokerage commission each time you buy or sell one.
Bond Funds
Bond funds achieve much of their return by collecting interest on the securities they own. They are also divided based on the kinds of investments they hold: high-grade corporate bonds, high-yield (and high-risk) corporate "junk" bonds, mortgage securities, government bonds, tax-free municipal bonds, or overseas issues.
Money Market Funds
Money market funds are similar to bond funds, but they have a few very distinct features, such as check writing abilities and a relatively stable share price. These funds invest in short-term corporate and government debt and pass the interest payments on to shareholders. Their stability and liquidity make them ideal for short-term savers or investors looking for a safe place to stash their cash.
-
Start-ups Trying to (Profitably) Solve the World’s Hardest ProblemsThe Letter More investors are interested in companies working on breakthrough science to tackle huge societal challenges. The field of deep tech has major tailwinds, too.
-
The Big Questions for AR’s FutureThe Letter As Meta shows off a flashy AR prototype, Microsoft quietly stops supporting its own AR headset. The two companies highlight the promise and peril of AR.
-
China's Economy Faces Darkening OutlookThe Letter What the slowdown in China means for U.S. businesses.
-
Should We Worry About the Slowing U.S. EconomyThe Letter With the labor market cooling off and financial markets turning jittery, just how healthy is the economy right now?
-
Kiplinger Special: How Businesses Should Budget for 2025Kiplinger Forecasts From fuel to AI software subscriptions, here's what you can expect to pay next year.
-
Intel Braces for an Even Tougher Road AheadThe Kiplinger Letter Amid a long, costly turnaround, Intel resets expectations again. Its new woes raise questions about U.S. industrial policy and global chip competition.
-
Kiplinger Special: The Long-Term Future of the U.S. Economy
The Kiplinger Letter Kiplinger's report into what it will take the U.S. to maintain a healthy economic growth rate.
-
Fed Rate Cuts Still on HoldThe Kiplinger Letter With inflation stubbornly elevated, the Federal Reserve will keep interest rates high for now.
