Mutual Funds

When it comes to mutual funds there are types that fit most budgets and investments styles. In North American alone there are in excess of 10,000 mutual funds, so there are more mutual funds than there are stocks. That is a very big selection to choose from and finding the right fund for you can be a major task.

The very first thing that any new investor need to consider is that, while there are a seemingly endless selection of funds to choose from, there are three general types and each type has different risks and rewards. A basic understanding of investing will tell you that the higher the value of the return, the higher the risk. such thing as a If you want to make more money faster you must take on increased risk, and while some funds are more speculative (and riskier) than others, all mutual funds come with some risk.

All mutual funds are composed of various investors who have similar financial goals. Basically there are 3 types of funds: Equity funds which are stocks; fixed-income funds, which are bonds; and Money Market funds. Every mutual fund is some sort of variant of these three general types.

Money Market Funds are generally the safest and consist of short term debt instruments like T-Bills. Your returns will not be spectacular, usually about twice what you will get with a savings account, but you’ll never lose your investment.

Bond funds are used to provide current income on a regular basis. These funds usually invest in government or corporate debt. While they will appreciate in value, they will do so at a slow rate, but will provide a steady cash flow. Bond funds are used mostly by very conservative investors and retirees. While they pay higher than Money market they do have a higher risk factor. Corporations go broke all the time and even governments are not immune. Witness the current economic troubles in California for an excellent example

Equity funds represent the largest group of mutual funds. Equity funds focus on long term capital growth with some income. There are many different types of equity funds because there are many different types of equities.

The best way to design your own “Best Mutual Funds” is to first classify each fund based on both size of the company and the investment style of the funds manager. Check the P/E, price-to-book ratios and high dividend yields. Compare your findings with your particular financial goals and go with the closest match.

Investing in any mutual fund is a tricky thing to do. Keeping your own financials goals clear in your mind when you do your comparisons will help you along this perilous road to financial success.

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