A mutual fund is essentially a pool of investments, such as stocks, bonds and money market funds, managed to a common goal. That goal is its investment objective.
Knowing a fund’s objective can help you decide whether it is designed to help you achieve your personal goals. Some mutual funds are built for long-term investing, while others offer short-term benefits. You can find a mutual fund’s objective stated in its prospectus.
What’s the benefit?
Every investment has advantages and disadvantages. But it's important to remember that features that matter to one investor may not be important to you. It all depends on your unique circumstances. For some investors, mutual funds provide an attractive investment choice because they generally offer the following features:
- Professional money managers research, select, and monitor their performance
- Some mutual funds accommodate investors who don't have a lot of money to invest by setting relatively low dollar amounts for initial purchases
- Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds
The mutual fund’s risks, charges and expenses are detailed in its prospectus. Read the fund’s prospectus carefully before making any decision about investing in it. If you invest through your employer’s retirement plan, you can download prospectuses from your plan website.
What’s the risk?
Every type of investment involves risk, including mutual funds. There are several types of risk that mutual funds may be affected by. A few of these risks include:
- Inflation risk – the possibility that increases in the cost of living could reduce a fund’s returns
- Market risk – the possibility that overall mutual fund prices could decline over a short or long period of time
- Manager risk – the possibility that a mutual fund’s investment adviser may fail to execute the fund’s investment strategy effectively
- Country risk – the possibility that financial troubles, political strife or natural disasters could weaken a country’s economy and cause investment values to decline
Get the help you need
Talk with a Retirement Specialist if you have questions regarding mutual funds.