Untitled Document
Mutual funds and

earning potential

Learn More
Mutual funds and your

investment goals

Learn More
Choosing the right

fund for you

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What is a Mutual Fund?

Learn about different types of mutual funds and how they work.  When you're ready, contact a financial advisor
to get started on or continue your investment journey. 

 


 

Definition of a Mutual Fund


A mutual fund is an investment that pools money from shareholders and invests in a diversified portfolio of securities,
such as stocks or bonds—or both. Mutual funds can be an easy and affordable way to invest because they offer:



Professional Management
Knowledgeable professionals with years of experience select the investments that make up a mutual fund portfolio

Diversification
Since a mutual fund includes a pool of securities, it can help reduce the risk that poor performance of a single
investment will have a disproportionate impact on your overall portfolio

Efficiency
Mutual funds can provide professional management and diversification at a fraction of the cost of making such
investments independently

Liquidity
Mutual fund shares are priced daily and may be sold at any time

Variety
Mutual funds are available in many asset classes and investment styles

Availability
Mutual funds can be purchased from brokerage firms, banks, insurance companies, financial planning firms, or
directly from mutual fund companies

Convenience
Mutual funds offer access to an array of investment services, such as automatic investing and withdrawal programs,
24-hour account information, reinvestment of fund dividends, consolidated account statements and tax information,
and more

 


 

How Do Mutual Funds Potentially Earn Money? 

Mutual funds are bought and sold in shares that are priced daily based on the value of the securities (stocks and bonds)
in their portfolios.
 

You could earn money two ways with mutual funds:

  • If you sell mutual fund shares for a higher price than the price you paid for them.
    The higher price would reflect an increase in the overall value of the fund’s securities

  • Stock dividends and bond interest payments

You can also lose money by investing in mutual funds. Like any investment, mutual funds involve risk, and some funds
have more risk than others.
 

The investment return and principal value will fluctuate, and shares, when sold, may be worth less than the original cost.
Also, sales charges, fees, and expenses may reduce your overall investment returns.

 


 

Mutual Funds Focus on Specific Investment Goals

Narrowing down your investment goals is not an easy task. 
Many investors have more than one goal, and those goals can often change over time.
Mutual funds can be used to address a wide range of investment goals
.

 

 

There were over 9,200 mutual funds serving a wide range of investor needs at the end of 2014.


Despite the many choices, mutual funds can be broken down to four basic types—and within each type you can address
one or more of the goals listed above.

Source: ICI. 2015 Company Investment Company Fact Book)


What Are Stock Funds?

A stock is a share of ownership of a company. A stock mutual fund owns shares in many different
companies. Types of stock mutual funds include:
 

Growth Funds: Stocks of companies whose earnings are expected by the fund manager to grow
faster than the overall stock market or companies believed to be selling for less than they are worth
and have the potential to rise to their true value over time.

Equity-Income Funds: Stocks that provide potential growth and dividend income.

International Funds: Stocks of companies based outside of the United States and Canada.

Global Funds: Includes stocks from around the world, including the U.S. and Canada.

Specialty—Gold/Precious Metals/Energy Funds: Stocks of companies that own, mine, process or
otherwise develop natural resources commodities.

What Are Bond Funds?

Bonds are debt obligations issued by national and local governments and companies all over the
world. When you purchase a bond, you are lending money to the issuer, who periodically pays you interest.
At the bond’s maturity date, you receive the par value of the bond. Bond funds include:

Corporate Bond Funds: Bonds issued by corporations rather than a national or local government.

High Yield Bond Funds: Corporate bonds that tend to be riskier and generally pay higher interest rates than
investment-grade corporate bonds.

U.S. Government Bond Funds: Bonds issued by the U.S. government to support government spending.

Tax-Free Municipal Bond Funds: Bonds issued by local governments whose interest rates are
not subject to federal income taxes.

Global Bond Funds: Bonds issued by national governments around the world.

What Are Hybrid Funds?

Hybrid mutual funds include a mix of stocks and bonds. Hybrid funds include:
 

Asset Allocation Funds: portfolios of a fixed or variable mix of the three main asset classes- stocks,
bonds, and cash equivalents - in a variety of securities. Actively managed asset allocation funds
consist of a mix of stocks and bonds that changes based on market opportunities as perceived
by the fund manager.
 

Balanced Funds: are a type of asset allocation fund with a fixed mix of stocks and bonds, such as
60% stocks and 40% bonds.
 

Life-Cycle and Target-Date Funds: generally have a stock-bond mix that changes over a lifetime,
moving progressively from aggressive to more conservative investments.

What Are Money Market Funds?

Money Market Mutual Funds: consist of short-term (less than one year) securities representing
high-quality, liquid debt and monetary instruments.

 

 

 

 

 

 

 

 

Source: ICI. 2015 Company Investment Company Fact Book)


 

Choosing the Right Fund For You
 

The universe of mutual funds offers almost unlimited choices. Choosing the right fund or funds for you should be driven
by your specific needs and financial goals. Some factors to consider include your:

 

  • Financial circumstances

  • Family situation

  • Age

  • Income and current investments

  • Time horizon

  • Risk tolerance

 

 

 


 

 

 


 

 

 

 

 

 

 

 

 

 


 

The target date is the approximate date when investors plan to retire and may begin withdrawing their money. The asset allocation of the target date funds will become more conservative as the target date approaches and for ten years after the target date by lessening the equity exposure and increasing the exposure in fixed income investments. The principal value of an investment in a target date fund is not guaranteed at any time, including the target date. There is no guarantee that the fund will provide adequate retirement income. A target date fund should not be selected based solely on age or retirement date. Participants should carefully consider the investment objectives, risks, charges and expenses of any Fund before investing. Funds are not guaranteed investments and the stated asset allocation may be subject to change. It is possible to lose money by investing in securities, including losses near and following retirement.
U.S. government securities are backed by the full faith and credit of the U.S. government, are less volatile than equity investments and provide a guaranteed return of principal at maturity.
There is no guarantee that dividends or capital gains will be paid.

 

0284084-00001-00 Ed. 10/2015