Finding a Fund That Meets Your Objectives

There’s a smorgasbord of funds out there — and you need
to have several types on your plate to be diversified.


n Large-, mid-, and small-cap funds: I discuss market
capitalization of stocks — the price of a share of the
company’s stock multiplied by the number of outstanding
shares. You can buy funds that specialize
in large-, mid-, and small-cap stocks. Smaller
capitalization correlates with higher risk and higher
potential returns. The NAIC recommends that you select
funds that specialize in a variety of market caps.

n Aggressive growth funds: Fund managers look for funds
that have the highest growth potential. These stocks may
be highly volatile, and you shouldn’t invest in them if
you may have to sell them at a time when the market is
down. This type of fund may also include risky options
and futures.

n High-performance funds: These funds are less riskoriented
than aggressive growth funds, but the fund
manager’s main objective is still performance and growth.

n Income funds: These funds focus on companies with
high dividend-paying potential.

n Sector funds: These funds purchase stocks in particular
market sectors of the economy — such as health care or
consumer goods.

n Tax-efficient funds: These funds are managed so as to
minimize taxable gains, and they include bond funds
that invest in federal, state, and municipal bonds.

n Socially conscious funds: These funds invest to be consistent
with investors’ personal as well as financial objectives.
I tell you how to use the Social Investment Forum
Web site at www.socialinvest.org to research these
funds later in the chapter.

n International funds: Managers of international funds
undertake the complex research necessary to profit from
overseas markets, which can be risky and complicated
but can offer high returns.

n Emerging market funds: These funds are a high-risk
version of international funds — specializing in Latin
American, Middle Eastern, Asian, and other economies
with volatile currencies.

n Index funds: Besides the Standard & Poor’s Index, index
funds are available that invest in small-cap index, international
index, mid-cap index, bond index, and others.