Mutual Fund Investment Strategies

This is a topic to which mutual fund investors must be paid close attention to. Not understanding how your money is really being invested can have devastating affects on your asset allocation mix. The only way to be certain of the investment strategy of the mutual fund is to carefully read the funds prospectus before you invest any money.

The typical investment strategies are:

• Growth Funds. These funds invest for investors that prefer long-term income from capital gains rather than dividend income.

• Income Funds. Funds in this category invest in securities with current income potential. This includes stocks with high dividend payment rates, convertible securities, and other income generating securities.

• Growth & Income Funds. Funds of this type invest in a combination of securities; ones looking for long-term or short-term capital gains as well as income generating securities. These funds are typically broadly diversified.

• Bond Funds. There are several types of bond funds with different investment strategies. There are funds that invest in international bonds, municipal bonds, U.S. government bonds, as well as corporate bonds.

• Index Funds. If you'd like a fund that will closely follow a particular market index, then these funds are for you. These funds invest in securities in proportion to a particular market index. A good example is the Vanguard Index 500 Fund. This fund tries to emulate the return of the S&P 500 index. They invest in over 350 of the 500 stocks that make up the index.

• Balanced Funds. This type of fund will invest in common and preferred stock as well as various types of bonds. The goal of this type of fund is to minimize market risk.

• Sector Funds. These mutual funds are funds which invest in a particular sector of the economy, typically investing in one industry. As you can imagine, these funds can be very risky. As with most risky investments, there are potentially excellent returns associated with these funds.

When you are making your mutual fund investment decisions, be sure to carefully read the fund's prospectus to understand what they are investing your money in. If you're at all confused, consult a financial or investment professional.

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