Mutual Funds

A mutual fund is simply a collection of stocks, bonds or other securities. Most mutual funds are "actively managed," meaning the mutual fund shareholders, through the expenses of the fund, pay a mutual fund manager to actively buy and sell stocks or bonds within the fund.

Advantages of Mutual Funds

Diversification - buying a mutual fund provides instant holdings of many different companies.
Liquidity - like individual stocks, you own shares, which can be sold at any time for current market value.

Disadvantages of Mutual Funds

Subject to market fluctuation and possible loss of principal

Fund Classifications

Mutual funds come in every possible size, shape, and color, and if you're in your company's 401(k) or 403(b) plan, you've probably noticed that already. Here are some of the general categories of mutual funds.


Bond mutual funds are pooled amounts of money invested in bonds. Bonds are IOUs, or debt, issued by companies or by governments. A purchaser of a bond is lending money to the issuer, and will usually collect some regular interest payments until the money is returned. Usually the amount of interest paid (the coupon) is fixed at a percentage of the amount invested, thus, bonds are called "fixed-income" investments.

Balanced Funds

Balanced funds mix some stocks and some bonds. A typical balanced fund might contain about 50-65% stocks and hold the rest of shareholder's money in bonds. It is important to know the distribution of stocks to bonds in a specific balanced fund to understand the risks and rewards inherent in that fund.

General Equity (Stock) Funds: Styles and Sizes

Stock or equity mutual funds are pooled amounts of money that are invested in stocks. Stocks represent part ownership, or equity, in corporations, and the goal of stock ownership is to see the value of the companies increase over time. Stocks are often categorized by their market capitalization (or caps), and can be classified in three basic sizes: small, medium, and large. Many mutual funds invest primarily in companies of one of these sizes and are thus classified as large-cap, mid-cap or small-cap funds.

International/Global Funds

International funds invest in companies who are based outside the U.S. Global funds. In general, international and global funds are more volatile than domestic funds.

Sector Funds

Sector funds invest in one particular sector of the economy: technology, financial, health, computers, the Internet, etc. Sector funds can be extremely volatile, since the broad market will find certain sectors very attractive and very unattractive - often in rapid succession.

When considering a mutual fund, be sure to get a copy of the prospectus which contains details about the investment objectives, risks, charges and expenses, as well as other important information about investing in mutual funds. You should carefully read and consider this information prior to investing.

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Securities and Insurance products offered through LPL Financial and its affiliates. Member FINRA/SIPC.

Mutual Funds, annuities and other investments through LPL Financial are NOT deposits, are NOT insured by the FDIC, NCUSIF or any other regulatory agency, are not obligations of or guaranteed by LBS Financial Credit Union, or any other affiliated entity, are subject to investment risk including loss of principal and are subject to fluctuating rates of return. LPL Financial is not affiliated with LBS Financial Credit Union. Tom Corrado is registered to discuss and transact securities business to residents of the state of CA.


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