Discover Stock Funds (or Equity Funds) This article is a continuation of Different Types of Mutual Funds.
There are many types of stock funds (also referred to as equity funds). As you can imagine, stock funds are more popular than bond funds and money market funds, especially for younger investors. Here's a break down of the most common types of stock funds:
Strategy Types
Growth Funds - These funds invest in stocks believed to be the fastest growing companies in the market. Growth funds rarely provide dividend income and are considered risky investments. Value Funds - These funds invest in large and mid-sized companies that appear to be overlooked or out of favor. These undervalued stocks tend to pay dividends. Blend Funds - These funds are a "blend" of both growth and value stocks. Sponsored Links 3 Top-Rated Mutual Funds Free Report on World's Top Funds Ranked by 10-year Industry Veteran www.DailyWealth.com/Funds_Report
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Large-Cap Funds - These funds invest in companies whose market value (# shares outstanding X current market price) is large. By large, I mean greater than $9 billion. These "blue-chip" funds tend to be well-established corporations and tend to pay dividends. Mid-Cap Funds - These funds invest in mid-sized companies whose market value is more in the range of $1 billion to $9 billion. Small-Cap Funds - These funds invest in emerging companies whose market value, is less than $1 billion. These companies tend to use profits to grow rather than pay dividends. Index Funds These funds try to mimic a chosen index. Examples of indices include the S&P 500, NASDAQ, and the Russell 2000. An index is simply a group of stocks chosen to represent a particular segment of the market. Usually this is accomplished by purchasing small amounts of each stock in a market.
Index funds are a hands-off approach to investing. The manager is not trying to find the hot stocks or great deals. Instead, the manager is simply trying to match an chosen index. The results are funds that are very cost efficient, meaning the operating costs are very low, and often beat most actively managed funds.
International Funds
Global Funds - These funds invest in both U.S. and International stocks. Foreign Funds - These funds invest primarily outside the U.S. Country Specific Funds - These funds focus on one country or region of the world. Emerging Markets Funds - These funds focus on small developing country and are considered very risky. Sector Funds Sector funds choose to invest in a particular industry or segment of the market. Examples of sectors include automotive, technology, baking, air transportation, biotechnology, health care and utilities.
Sector funds are considered less diversified than most mutual funds, but they do offer diversification within a particular industry.
Conclusion There are many variations of mutual funds that I left out (for example funds that invest in both stocks and bonds), but you should now have a fair understanding of the different kinds of mutual funds.
Now that you have a understanding of the basics, I recommend you build on your knowledge by reading the other articles on this site and by following many of the links found in the subject listings on the left-hand side of this page. From what I have seen, people don't spend nearly enough time understanding their investments even though the difference between a good investment and bad investment can be as drastic as retiring when you are 45 rather than 65 or 70.
