3 Common Types of Mutual Funds
Types of Mutual Funds
There are many types of mutual funds within these three types of mutual funds. Here are the 3 different major types of mutual funds. The risks of mutual fund investing runs the gamut. There are very low risk to very high and many levels in between, within one type of fund.
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My experience with mutual funds is long and wide. The information I share with you reflects my decades long experience.
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1. Allocation Mutual Funds
Risk: Low to Medium
Allocation mutual funds are a combination of stock and fixed income securities and are subject to the risks involved in each of these security types.
Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. In general, the bond market is volatile with fixed income securities that carry the interest rate, inflation, price volatility and other risks. Another way to invest in mutual funds is in bond mutual funds.
2. Alternative Mutual Funds
Risk: From Low Risk to High
The mutual fund may invest in securities that may have a leveraging effect (such as derivative and forward-settling securities). This may increase market exposure, magnify investment risks, and cause losses to be realized more quickly.
3. Money Market Mutual Funds
Risk: Very Low
A money market mutual fund is a type of fixed income mutual fund that invests in debt securities. They are characterized by their short maturities and minimal credit risk. You could lose money by investing in a money market fund, but the chances are nominal.
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An investment in a money market fund (different from a money market saving account), is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Before investing in mutual funds always read a money market fund’s prospectus for policies specific to that fund.
There are many types of mutual funds which I cover in my full Fantastic Finances Course.
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