Mutual fund investing styles 4

If you ever get confused about which account is best, just remember: Match beats Roth beats Traditional. Diversify your investment portfolio. Whenever someone talks to you about investing, the word diversification probably gets thrown around a lot. After all, the last thing you want to do is treat your retirement portfolio like the Kentucky Derby and bet it all on one horse.

Below are the four mutual fund categories we talk about and the reasons why we recommend them: Growth and income: These funds create a stable foundation for your portfolio. These can be described as large, well-known big and boring American companies that have been around for a long time and offer goods and services people use regardless of the economy.

Growth: This category features medium or large U. Unlike growth and income funds, these are more likely to ebb and flow with the economy. For instance, you might find the company that makes the latest "it" gadget or luxury item in your growth fund mix. Aggressive growth: Think of this category as the wild child of your portfolio. You may see these referred to as foreign or overseas funds. It can be tempting to get tunnel vision and focus only on funds or sectors that brought stellar returns in recent years.

Just remember, nobody can time the market or predict the future unless you happen to have a time-traveling DeLorean parked in your driveway. Before committing to a fund, take a step back and consider the big picture. How has it performed over the past five years? What about the past 10 or 20 years?

Choose mutual funds that stand the test of time and continue to deliver strong returns over the long haul. Brush up on investing lingo. But a basic understanding of some of the most common terms will help. Cost: Make sure you understand the fee structure that your financial advisor uses to get paid.

Large-, Medium- and Small-Cap: Cap stands for capitalization, which means money. To most investors though, it refers to the size and value of a company. Medium-cap companies are moderately risky, and small-cap companies are the riskiest—but have the biggest payoffs. Performance Rate of Return : Again, you want a history of strong returns for any fund you choose to invest in. Focus on long-term returns —10 years or longer if possible. Portfolio: This is simply what your investments look like when you put them all together.

Sectors: Sectors refer to the types of businesses the fund invests in, such as financial services or health care. A balanced distribution among sectors means the fund is well diversified. Turnover Ratio: Turnover refers to how often investments are bought and sold within the fund. Getting familiar with these terms will help you feel a little more comfortable as you make investing decisions with your investment professional.

Work with a financial advisor. A good investment professional can do two very important things. First, they can help you pick and choose what mutual funds to include in your retirement portfolio. Be clear about your goals up front so that you and your pro are on the same page before you make any decisions!

And second, they can help you sort through all the lingo and jargon of the investing world. You can work with a SmartVestor Pro who understands your goals and can help you make investment choices for your future. This article provides general guidelines about investing topics. Your situation may be unique. Footnote 1 Sector Focuses on industry sectors such as utilities, financial services, technology, or health care. Size Some investors use the size of a company as the basis for investing.

At times, the highest returns — on average — have come from stocks with the lowest market capitalization common shares outstanding multiplied by share price. But since returns tend to run in cycles, there have also been periods when large-cap stocks have outperformed smaller stocks. Small-cap stocks also tend to have higher price volatility, which translates into higher risk.

Some investors choose the middle ground and invest in midcap stocks — seeking a trade-off between volatility and return. Target date With target-date funds, your portfolio's asset allocation is automatically rebalanced on your behalf over the years by the fund's managers, typically growing more conservative as the identified target date approaches.

Generally speaking, the name of each target-date fund includes a specific year, such as "" or " From that point on, professional investment managers make all the investment decisions. Sector Sector funds are mutual funds that invest in sectors such as utilities, financial services, technology, or health care, to name a few. The funds target specific industries and economic niches to seek above-average returns.

Although these funds may reduce individual security risk, some may fluctuate in value more than diversified, multi-sector funds. These funds may also include a greater percentage of small-cap stocks, which may offer greater opportunity for growth but at the expense of potentially greater risk. Do not judge a fund by its cover With such a wide variety of investment styles, individual fund investors may be confused as to which is the best.

In order to reduce volatility, many experts encourage diversifying or spreading money around among different investment styles. Footnote 1 Fund investors need to ask questions, read the fund prospectus carefully before investing, and also consider the investment objectives, risks, and charges and expenses of a fund and consult fund rating services to make sure they are buying a style that is right for them.

Share: Footnote 1 Diversification does not ensure against loss. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions. The opinions and views expressed do not necessarily reflect the opinions and views of Merrill or any of its affiliates.

Any assumptions, opinions and estimates are as of the date of this material and are subject to change without notice. Past performance does not guarantee future results. The information contained in this material does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security, financial instrument, or strategy.

Before acting on any recommendation in this material, you should consider whether it is in your best interest based on your particular circumstances and, if necessary, seek professional advice.

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