Types of Mutual Funds
There are more mutual funds than stocks, and these funds come in every style, color, and flavor you can imagine. (Most of 'em taste pretty nasty, though.) You can match them to your mood, investment strategy, hair style, or outfit. You can buy growth funds, small growth, foreign stock, value, blend, or one of a zillion other types we can't pronounce.
Morningstar (a clearinghouse) can define each of these mutual funds for you…but what do all the names mean?
Growth is what brokers (and you) hope these funds do.
Growth funds have investments that are chosen for long-term performance. They may include companies like Amazon and Google that are hot right now, but which are also expected to do well as you get older. There's no guarantee, of course. (Is there ever?)
These funds are supposed to be a bargain. Brokers look at the price-to-earnings ratio find the ones that seem undervalued.
Like the name suggests, these funds are a mixture of different types of stocks. Like your favorite Starbucks blend, YMMV (your mileage may vary). What works for you as a blend (grande soy chai with a shot of caramel?) might not work for your neighbor or best friend.
Small cap funds include smaller and sometimes younger companies that you hope won't go under. You're kind of betting on the underdog here.
Large capitalization companies have likely been around for a while, are more likely to pay a dividend, and are part of industries that are pretty well established. These companies are less likely to go bankrupt, but no guarantees.
Pretty much what it says on the tin: these funds all include shares from companies in the tech industry.
How to Choose
A lot comes down to what you believe in and how much you're willing to risk. If you want to get better returns (or the potential for them), you're going to want to look at funds where prices may go up and down more but where the potential for growth is higher. If you want more security, you may want to look at Large Cap funds, where you may get a dividend and less of a rollercoaster ride. Want to make a difference? There are funds with only "ethical" or green companies included.
Like your Starbucks order, it really depends on your preferred blend.
Whatever you end up choosing, you can enjoy the diversity that mutual finds offer. So if you don't have a ton of money to invest and can't spend your nights reviewing spreadsheets and columns of numbers, mutual funds let you invest with smaller amounts and with less research.