Whether you’re a conservative investor or someone who is willing to invest aggressively, you’ll find a mutual fund that’s right for you. Actively-managed funds generally have two broad objectives:

• Growth
• Income

To achieve growth or income or a combination of both, the mutual fund’s portfolio manager utilizes a particular investment strategy.

Mutual fund managers put their own imprint on investing for growth or income. For example, aggressive growth fund managers take more risks to achieve that goal. Fund managers aiming for income may invest in stocks or bonds, or some mixture of the two. Another fund manager might generate income for shareholders by focusing on stocks that pay high dividends.

International Funds

Global or international funds invest in foreign companies. They are usually riskier than funds that invest in companies doing business in the United States. When you invest internationally, you face the following risks:

• Currency fluctuations
• Political uncertainty
• An uncertain business and legal environment
• Different accounting practices

Index Funds

Index funds are mutual funds that do not try to predict which investments will go up in value. Instead, index funds create a portfolio that mimics the performance of a particular market index. For example, an index fund may be comprised of the same stocks that make up the Dow Jones Industrial Average. The Dow is a collection of 30 blue chip stocks and is one of the best-known indicators of how the market is performing. A number of index funds mirror the performance of the S&P 500, which is made up of 500 widely-held common stocks.

Index funds may duplicate the stocks, bonds or investments making up other indices. As examples, there are indices for:

• Large, mid or small-capitalization stocks
• Foreign stocks
• Growth stocks
• Value stocks
• Bonds in almost all categories

Index funds are built on the assumption that you will succeed as an investor if you match the performance of the market as a whole or in one particular area. An index fund keeps pace with the market index on which it is based. In contrast, actively-managed funds attempt to outperform the market as a whole or in one particular area. An index fund almost always has lower expenses than a mutual fund that is actively managed.

Exchange-Traded Funds (ETF)

An Exchange Traded Fund (ETF) is a similar investment that also tries to match the performance of a market index or benchmark. It might build a portfolio based on a particular style of investing or a certain type of investment. For example, you can buy an ETF that seeks investment results that correspond to the performance of U.S. large-cap value stocks. Another ETF might build a portfolio that is tied to a bond index. With each share of an index fund or ETF, you build diversity into your portfolio.

Here’s how an ETF differs from an index fund:

• Although ETFs are a type of investment company, they are not mutual funds and may not refer to themselves as such.
• ETFs are purchased on the stock market, not through a mutual fund company.
• You pay a brokerage fee when you buy or sell shares, rather than a sales load.
• The price you pay is the price at the time the trade takes place, not at 4:00 EST which is when mutual fund share values are calculated.
• Although index funds have low expense ratios, the annual expenses of ETFs are usually even lower.

Both index funds and ETFs offer tax savings, because they make fewer trades than an actively-managed fund. Index funds and ETFs do not change the basic makeup of their portfolios, so there is little need for the manager to make frequent purchases and sales of securities. In contrast, an actively-managed fund is constantly buying and selling investments, so it is more likely there will be capital gains distributions and tax consequences.

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