Mutual funds come in every shape and color you can imagine – in fact, there are more mutual funds than stocks! For flavor, you can buy growth, value, blend, mid-cap blend, small growth, foreign stock or even a select materials portfolio. The clearinghouse that defines what each of these are is Morningstar. You get the picture. What do those mean?
Growth generally implies you have a long-time horizon. You want companies like Google, Apple, and Amazon which can be high-fliers but offer a call on the future.
Value means well-priced. Investors are looking for stocks that are perceived as undervalued based on the price to earnings ratio.
Blend – like morning – it is a mixture.
Large Cap means big capitalization. Companies that are big, often in mature markets, frequently pay a dividend and probably won’t go bankrupt.
Small Cap is just the opposite. These are collections of “little trains” that hopefully can.
You believe in technology, buy a tech fund. You believe in China, you can go there as well, without getting on a plane to investigate those companies.
Different investors want different flavors. Some want a little cash (dividend) and some are willing to risk huge volatility (prices going up and down) in exchange for hopefully a better return.
Mutual funds offer a number of benefits. They help an investor diversify, tend to have low minimum amounts to invest, and safe a ton of hassle including keeping up with companies and regulation.