Investing in Stock Funds: Equity Mutual Funds
Most beginners to mutual fund investing have heard of the term equity mutual funds but aren’t quite sure what it means. Simply put, equity mutual funds are mutual funds that invest principally in stocks. Despite not knowing what equity funds are, most people who own mutual funds probably have an equity fund in their portfolio.
There are a number of equity mutual fund options that you can buy, depending on the level of risk you are willing to take on. Growth stock mutual funds for example consist largely of stocks for that have the potential to grow very rapidly and provide investors with large capital gains, while on the other hand more risk averse investors may opt for a dividend fund that consists of stocks for low risk companies that pay a regular dividend but don’t appreciate much in terms of stock price.
Equity mutual funds can be broad investments that span an entire range of stocks, such as the S&P 500 or the Russell 2000. These funds are known as index funds, and the major advantage of index funds is that you are basically instantly diversified. Barring a crash of the entire market (which seems a bit more realistic these days), your money is relatively safe.
You also have the option to invest in actively managed equity funds that are managed by a fund manager that invests on behalf of the mutual fund owners on what combination of stocks they feel will provide the best rate of return for their investors. Typically portfolio managers have a great deal of investing experience that they can rely on to provide better returns, but they also have very advanced systems that help them to better time the market.
Other equity funds may be more specifically tuned to a particular group of stocks such as green mutual funds. On the other hand equity funds can have a particular diversification strategy that spans a broad range of stocks, perhaps a mix of growth stocks and dividend stocks to give investors a mix of capital gains and stable returns.
Equity funds are a great way for investors, especially beginning investors, to get most of the benefit of investing in the stock market, but without the risk that usually accompanies it. Equity funds can provide a nice level of diversification, or if you’re so inclined can provide you with the increased risk and reward that you’re looking for. The best part is that there are so many forms of equity mutual funds that there is sure to be one that is perfect for you and for your portfolio.