A Fund For Every Investor
Money Market Funds invest only in short-term, high quality, interest-bearing securities… one of the safest investments around. Historically, the price of shares in a money market fund has not fluctuated so the value of your investment should remain stable. All that varies will be the interest that the fund pays out.
Government Bond Funds offer the potential for high interest from securities issued or backed by the U.S. government, financially the strongest issuer in the world. They will generally pay a higher interest rate than money market funds. However, they vary in both yield and price with market conditions. If interest rates in the economy rise, for example, the funds yield will gradually increase but the value of the fund shares will decline. If interest rates fall, the yield will decrease but your share price will increase. This variability occurs in all kinds of bond funds, not just government funds.
High-Grade Corporate Bond Funds seek to pay you higher income by investing in the bonds of the strongest and most financially secure corporations. They are second in quality only to U.S. government bond funds and generally pay a slightly higher yield.
High-Yield Corporate Bond Funds invest in high yielding, medium and lower-rated corporate bonds. Because these companies are not as financially strong as other corporations or the U.S. government, high-yield funds are generally riskier that other bond funds. But if you are willing to accept the risk, you may increase the potential for earning a higher rate of interest on your investment.
Tax-Exempt Bond Funds invest in bonds issued by states and municipalities, and the income they pay out is free form federal taxes. Some tax-exempt funds specialize in bonds issued within one state and, for residents of that state, the funds income is also free from state and local taxes. Tax-exempt money market funds buy short-term municipal bonds, and like taxable money market funds, their shares historically have not fluctuated in value. High-grade tax-exempt bond funds invest only in bonds issued by financially strong municipalities, while High-yield tax-exempt bond funds invest in the bonds of lower-rated issuers in order to earn a higher interest rate.
Income, Balanced and Growth-and-Income Funds all invest in both stocks and bonds, so you receive a two part return: steady interest income form the bonds and dividends from the stock. In a rising stock market, you can expect growth in the value of your investment. Income funds derive a large portion of their income from bonds. Generally, at least half of their portfolio is invested in bonds. Balanced funds usually keep a smaller portion of their portfolio invested in bonds, while growth-an-income have the flexibility to invest entirely in stocks if the investment manager thinks it advisable. Because stocks usually fluctuate in price more than bonds, growth-and-income funds will be less stable in value than balanced funds, which in turn will be less stable than income funds – but also potentially more profitable.
Growth Funds invest almost entirely in stocks, typically those of established companies. The goal of these funds is to make the value of your investment appreciate over time, though they may pay a small amount of income from dividends.
Aggressive Growth Funds typically invest in the stocks of small, rapidly growing companies. The funds focus on growth and pay little or no dividends. In the near term these funds are less stable in value than just about any other kind of fund. However, the potential for long-term return may be greater.