Fund Category

Figuring out our investment allocation strategy can be a lot like filling out an online dating profile. We have to answer a lot of the same questions:

Are we looking for stability and security?

Do we like to take risks?

Are we looking for a fling or something more long-term?

Where do we see ourselves in 20 years?

Do we like cats?

Okay, that last one might not play too heavily into our investment strategies. Sorry, Fluffy. But the rest of them sure will, which is why it’s so handy that fund categories exist. They're basically a way of organizing mutual funds according to what they do and/or how they do it. Sometimes these fund categories can be simple—a stock category and a bond category—but sometimes, they can get more complex.

For example, if we’re not planning to retire for another 40 years, we might be willing to get a little risky with our investments, since we have plenty of time to try and make up any losses. Knowing this, we might ask our investment broker to allocate a greater amount of our overall mutual fund portfolio toward a more high-risk fund category.

Or if long-term growth potential is what we’re really into these days, we can allocate more toward that type of fund category. Or if we just can’t even with these types of high-stress financial decisions, we can hire firms who specialize in managing portfolios with predetermined fund category allocation levels.