AxTenk Blog

    Fidelity Investments is the place to go for vast variety. The company offers hundreds of different funds, ranging from your basic growth funds to a wide array of sector funds. Some of the company’s funds are no-load; others charge either front-end or back-end sales fees. The company also has a handful of branch offices, where you can go to watch the stock ticker or talk to a representative. Contact details: www.fidelity.com, (800) 544-8888 or (800) 544-6666.

    Charles Schwab & Co. Inc., once mainly a discount brokerage firm, now also offers a wide array of proprietary mutual funds. The firm continues to provide access to other companies’ funds, as well, through its “OneSource” program. What makes Schwab notable, besides how it lets you do some one-stop shopping—buying your individual stocks, Schwab funds, and outside funds all from one place—is that the company offers some of the lowest investment minimums in the industry. With many of its funds, investors can buy in for as little as $100. Most other fund companies require initial investments that are at least ten times higher. This makes Schwab a great choice for a beginning investor who doesn’t have much cash—yet. Contact details: www.charlesschwab.com, (866) 232-9890.

 T. Rowe Price offers more than ninety highly rated no-load funds, ranging from money markets to aggressive stock funds. The company also participates in a fund purchase program called Gateway that allows you to buy about 3,000 funds offered by one hundred other mutual fund families. By buying through T. Rowe, Gateway allows you to get a consolidated statement. In terms of investment minimums, you can either start with a lump sum of $2,500 or, if you don’t have that kind of cash in your sock drawer, you can opt for the “systematic purchase option”, whereby you simply invest at least $100 a month. (The investment minimum for IRAs is lower—$1,000 as a lump sum or a systematic purchase of at least $50 per month.) T. Rowe is also well known for wonderful investment literature, including brochures on investing for retirement and investing while in retirement. Contact details: www.troweprice.com, (800) 541-6066.

    Vanguard Group Inc. is noted for its low fees and index funds. The company offers dozens of stock-index, bond-index, international-index, and money market funds. If you want to put the bulk of your investment money in index funds, it’s tough to do better. The company also offers a wide spectrum of asset allocation, target-date, and exchange-traded funds, as well as some highly rated actively managed funds. The only criticism savvy investors have of Vanguard is that its asset allocation and target-date funds tend toward the conservative side. That reduces their volatility, but can make them a little less profitable too. Otherwise, the company is widely respected and recommended. However, Vanguard requires relatively large investment minimums. You generally cannot open an account with less than $3,000 for a taxable account or $1,000 per fund for an IRA. Contact details: www.vanguard.com, (800) 523-0857 or (877) 662-7447.

?    Municipal bond funds invest primarily in debt issued by state and local governments. Those who buy funds that invest in the debt of their home state are likely to find that the income earned on these accounts is firee from both state and federal taxation.
Risk: Moderate
Potential for capital appreciation: Low
Potential for current income: Moderate

?    Sector funds invest in specific industry groups. You would buy a sector fund if, for example, you wanted to participate in the fortunes of just the technology industry, or just the health care industry, or just Net stocks. These funds are highly volatile and relatively undiversified. They are suitable for people who want to take a piece of their assets and gamble a bit.
Risk: Very high
Potential for capital appreciation: Very high
Potential for current income: Very low

?    Junk-bond funds invest in the debt of companies that have borrowed heavily and thus need to pay premium interest rates to borrow more. These funds pose greater risks to your principal than traditional fixed-income funds; however, they also typically promise higher rates of return.
Risk: High
Potential for capital appreciation: Low
Potential for current income: High

?    Money market funds invest primarily in short-term government debt, bank deposits, and short-term corporate debt. The net asset values of money market funds are usually pretty stable. However, the yields are also relatively low.
Risk: Very low
Potential for capital appreciation: Very low
Potential for current income: Moderate

?    Growth funds consist of stocks in larger, more established U.S. companies. Stock prices are volatile; however, the price of shares in established companies is comparatively less volatile than the price of shares in small, untested companies. Consequently, growth funds are a bit less risky than aggressive growth funds.
Risk: High
Potential for capital appreciation: Moderate
Potential for current income: Low
?    Growth and income funds combine growth stocks with stocks in companies that pay high dividends. Some growth and income funds also invest in convertible securities and/or bonds and money market instruments. Others get the income side of the equation by selling call options on the stocks in their portfolio.
Risk: Moderate
Potential for capital appreciation: Moderate
Potential for current income: Moderate

    Equity-income funds invest primarily in stocks that pay high dividends. These present some potential for capital appreciation but much less stability than a balanced fund or than many types of fixed-income funds.
Risk: Moderate
Potential for capital appreciation: Low to moderate
Potential for current income: Moderate

    Global funds invest in securities issued all over the world— foreign and domestic. International funds invest in non-U.S. markets. Because the cost of trading in overseas markets is comparatively high, you should expect these funds to charge slightly higher fees than domestic stock funds. Also, international markets, particularly those in developing nations, tend to be more volatile than the U.S. market, so you should expect bigger changes in your net asset values.
Risk: High
Potential for capital appreciation: High
Potential for current income: Low (except with global and international bond and income funds)

 Fixed-income funds invest in bonds and other fixed-income instruments, such as mortgage-backed securities. There is a wide array of different types of fixed-income funds, ranging from funds that invest in high-grade debt, such as Treasury notes and bonds, to those that invest in the debt of highly indebted companies (junk-bond funds). Obviously, the risk to your principal hinges on what type of securities your fund buys. However, all fixed-income funds face interest-rate risk. In a nutshell, if interest rates rise, the value of your old, relatively low-yielding bonds will fall. If interest rates drop, the value of your old, relatively high-yielding bonds will rise. But when you buy individual bonds, you’re relatively blind to the changes in market direction—no one calls you to tell you that your bond is worth less or more than what you paid on a day-to-day basis. Mutual funds report their net asset values every single day. So if you’ve got a paper loss on your bond fund, you’ll know it. These paper losses should not negatively affect the income you receive, so if you are investing mainly for income, you shouldn’t let them bother you. But expect to see them, because interest rates do change and will affect the fund’s net asset values.
Risk: Moderate
Potential for capital appreciation: Low to moderate
Potential for current income: High