Yesterday Michael Fischer explained how mutual funds allow individual investors to pool money in order to achieve goals that would otherwise be out of their reach. Today he looks at different kinds of mutual funds:
Types of mutual funds (2:10)
There are several thousand mutual funds available in the U.S. alone. As you might imagine from such a selection, there's a mutual fund for nearly every savings goal. There are mutual funds for those interested in socially-responsible investments. There are mutual funds for those interested in tech stocks. There are mutual funds based around Biblical principles. There are mutual funds that simply try to mirror the performance of a stock index. There are mutual funds that attempt to beat the markets in an aggressive fashion. There are junk bond mutual funds. There are real estate mutual funds. There are foreign funds. There are mutual funds designed to target specific retirement dates. There are mutual funds that trade on the stock market.
You name it, and there's probably a mutual fund for it. As an example of the variety available, check out the “periodic table” of Vanguard exchange-traded funds. There's a huge selection from which to choose.
So how does one decide which mutual fund to purchase? That's a tough question. Picking mutual funds is like picking stocks: your choice will ultimately depend on your objectives, how long you wish to invest, and on your risk tolerance. (“How to select a mutual fund” actually sounds like a great topic for a future entry.)
Tomorrow Michael explains active and passive management, and discusses why index funds are so popular.