mutual funds

Maybe the easiest, most familiar way to invest

Mutual funds invest in money market instruments, like commercial paper and Treasury bills and seek to provide stability of principal and a steady stream of interest income – while keeping your money liquid and always available to you.

• You’ll hear the term "rate" used, but money market mutual funds don't pay interest. They pay dividends to shareholders. These dividends are often expressed as a rate of return. 
• A money market account at your credit union shares some characteristics but is very different. When you’re invested in a money market mutual fund, the fund tries to maintain a per-share value of $1, and your return fluctuates with the net asset value of the fund’s holdings. It is important to note, that although a MoneyMarket Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in a MoneyMarket Mutual Fund. 
• The dividends you receive from money market mutual funds are taxed as ordinary income unless you’re invested in a tax-exempt fund. 

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Many benefits of the stock market with potentially broader diversification

These mutual funds invest in a portfolio of individual stocks and seek primarily to increase the value of an investment through appreciation. While you’ll have many choices among a variety of mutual funds, there are a few things you can count on:

• Some invest in well-established companies that pay dividends. Others seek bigger payoffs by investing in growth-oriented upstarts. Others focus on firms they consider “undervalued.”
• Funds also offer you choices based on market capitalization (large, mid, small), geography (domestic, international, global), and different business sectors. The funds spell out their approach in their prospectuses.
• In general, funds that focus on growth by investing in young, emerging firms will mean more risk for you.
• Your profits on stock funds are taxable unless they’re in certain tax qualified retirement accounts or education accounts. (Whatever you do with stock funds, make sure to consult your accountant or tax planner.) 

As you evaluate stock funds, you’ll hear about “loads.” These are sales commissions investors pay, sometimes paid when buying (a front-end loaded) and sometimes paid when selling (a back-end or deferred load). Talk to an advisor to help you navigate through your various options.*

*Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions and it may not achieve its investment objective.

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Bond funds are designed to produce regular income for shareholders by investing primarily in corporate or government bonds. Like any mutual fund investment, you’ll match the funds’ objectives and style with yours. Some strive to produce steady returns with less volatility. Some offer the possibility of higher yields. You can also choose funds that consider your tax status.

• Every bond fund will explain things like its objective, the types of investments it makes, when it pays dividends and capital gains, how long it’s been around, the expenses it comes with, and other key facts.
• You’ll want to compare any prospective bond fund's performance to its peers. Actively managed bond funds – with higher operating expenses and charges of 1% or more billed to you – strive to outperform peers.

As you evaluate bond funds, you’ll hear about “loads.” These are sales commissions investors pay, sometimes paid when buying (a front-end load) and sometimes paid when selling (a back-end or deferred load). 

*An increase in interest rates may cause the price of bonds and bond mutual funds to decline.

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Exchange Traded Funds, or ETFs, are similar to mutual funds but trade like individual stocks. You can invest in large and small cap ETFs, a U.S. stock ETF, or an international stock ETF. They’re passively rather than actively managed, so they often have lower fees than mutual funds.

• Some ETFs track an index, such as the Dow Jones Industrial Average or the S&P 500. Managers usually do very little trading of securities within the ETF, which is what’s meant by the term “passively managed.”
• They’re bought and sold through a brokerage house, by phone or online, just like stocks. Prices can change fast, just like stocks. Trade orders can be executed during the day (in contrast to mutual funds, where the actual trade happens once per day after the markets close).
• You’ll pay small trading fees with ETFs, but in general they’ll cost you less than a mutual fund. And there’s not a “load,” a fee many mutual funds charge to enter or exit the investment.
• You may pay taxes on the gains you may make from ETFs, but investors have more control over the timing of capital gains and when taxes are incurred. 

*ETFs trade like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above or below the ETF's net asset value (NAV). Upon redemption, the value of fund shares may be worth more or less than their original cost. ETFs carry additional risks such as not being diversified, possible trading halts, and index tracking errors.

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