Nearly all mutual fund shareholders acknowledge that investing in equity or bond mutual funds involves some degree of risk. About half of shareholders say they are willing to assume average risk for average potential gain, and 35% are willing to accept above-average risk for above-average potential gain.
The actions of mutual fund shareholders would seem to validate their willingness to tolerate risk in order to reach financial goals: 80% own equity funds, which are generally considered the riskiest type of fund, considerably more than the 49% of shareholders who own less–risky money market funds.2
Whether you are a conservative investor or an aggressive one, it’s likely there are mutual funds that match your risk tolerance.
Fund to Fit You
Investors with a long time horizon who are willing to accept more risk in pursuit of greater return potential may want to consider equity mutual funds, which typically invest in a portfolio of stocks that pursue the funds’ stated objectives.
Investors who have a shorter time horizon and less appetite for risk may prefer bond mutual funds, which purchase debt issued by corporations and governments. This type of mutual fund is generally considered less volatile than an equity fund, provided that the fund manager trades bonds rated investment grade or higher. Bond funds are subject to the same inflation, interest–rate, and credit risks associated with the underlying bonds in the fund.
For investors who have cash they will need in the short term, a money market mutual fund may be more appropriate. This type of fund typically invests in short–term debt instruments and is considered among the least volatile.
Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund attempts to maintain a stable $1 share price, you can lose money by investing in a fund.
Mutual funds are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
