Stock Mutual Funds
Stock mutual funds are mutual funds that primarily invest in stocks (hence the name). As we know, mutual funds invest in a variety of securities which are then combined and divided in to shares for investors according to how much they invested in the fund. Let’s take a closer look at stock mutual funds shall we?
Common stock mutual funds (also known as equity funds) have benefits and drawbacks for investors. First it should be known that funds that invest primarily or exclusively in stock are in a higher risk class than their money market fund or bond fund counterparts, so if risk isn’t your thing then you should look elsewhere. The upside to stock funds is that you get the benefits of buying stocks, which have outperformed almost every other investment over time, but you get the added diversification of buying many stocks which the everyday investor simply can’t afford to do.
There are a bunch of different types of stock mutual funds that you can buy, so you should be able to find a stock fund that matches your risk type and investment goals.
For those of you looking to be a little riskier with your investment income in exchange for a good return you could look in to growth stock mutual funds. Growth stock funds invest primarily in funds that have high growth upside, allowing the investors to benefit from the capital gains (appreciation in the stock’s value). There are varying levels of growth funds from lower risk growth funds to aggressive growth funds so be sure to understand which you are investing in before you hand over your cash.
You also have the option to invest in sector funds which are stock funds that focus primarily on a single sector of the market such as tech, energy or health care. As we learned during the dot com era, you can make a great deal of money by focusing on a single sector of the market, but you can also lose a great deal of money by focusing on a single sector as well (see the dot com bubble collapse of the early 00’s). If you were to invest in this type of fund it would make sense to invest in a few of them to diversify your holdings.
You can also invest in a more specific type of sector funds such as gold stock mutual funds which consist of precious metals sector stocks, but only those that focus on gold investing. Additionally you can invest in an entire index with stock index mutual funds, for those who want to spread the risk even more.
You can also invest in stock mutual funds that focus on a particular size of stock, these are known as cap funds. Market cap (short market capitalization) is a gauge of the total worth of a company and is calculated simply by the value of the common stock times the number of shares outstanding. Typically the larger the market cap the more stable the company, so large cap mutual funds tend to hold less risk than small cap or micro cap funds.
Stock market mutual funds have a lot of advantages and disadvantages so be sure you do your homework before you buy. As always consult with your financial advisor to be sure that stock funds are appropriate for your investment portfolio and ask for help determining which stock funds are right for you.
© Stock Mutual Funds
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