Types of Mutual Funds
There are many common 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 is very low risk to very high and many levels in between, within one type of fund.
Do your research thoroughly before investing, use my easy-to-understand ebook and course for research. Your understanding of mutual funds will skyrocket.
My experience with mutual funds is long and wide. The information I share with you reflects my decades long experience.
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. The high and low fluctuations of price denote risk. When risk
is low, the price fluctuations are minimal.
Stock markets are volatile and can fluctuate significantly in response to company, industry, and political issues. There are regulatory, market, and economic developments that affect prices as well.
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
A 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. Leveraging mutual funds run on the high-risk side.
Lower-risk mutual funds have less leveraging. The exposure to high-risk investments is minimal. For example, dividend-paying stocks of old companies with mounds of cash is lower risk.
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.
This type of fund is for those who want almost no risk, and don’t care about high returns over time.
Value funds, such as those that carry dividend-paying stocks have a greater chance of getting medium to large returns.
An investment in a money market fund (different from a money market savings 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.
A money market fund gives minimal returns over time, just as a money market account.
There are many types of mutual funds which I cover in my full Fantastic Finances Course.