Fund Category
Figuring out our investment allocation strategy can be a lot like filling out an online dating profile. We have to answer a lot of the same questions:
Are we looking for stability and security?
Do we like to take risks?
Are we looking for a fling or something more long-term?
Where do we see ourselves in 20 years?
Do we like cats?
Okay, that last one might not play too heavily into our investment strategies. Sorry, Fluffy. But the rest of them sure will, which is why it’s so handy that fund categories exist. They're basically a way of organizing mutual funds according to what they do and/or how they do it. Sometimes these fund categories can be simple—a stock category and a bond category—but sometimes, they can get more complex.
For example, if we’re not planning to retire for another 40 years, we might be willing to get a little risky with our investments, since we have plenty of time to try and make up any losses. Knowing this, we might ask our investment broker to allocate a greater amount of our overall mutual fund portfolio toward a more high-risk fund category.
Or if long-term growth potential is what we’re really into these days, we can allocate more toward that type of fund category. Or if we just can’t even with these types of high-stress financial decisions, we can hire firms who specialize in managing portfolios with predetermined fund category allocation levels.
Related or Semi-related Video
Finance: What is Capital Appreciation (M...10411 Views
Finance a la shmoop what is capital appreciation as in the sense of an
investment fund or a mutual fund you know that is like what does it mean to
have a mutual fund with a focus on capital appreciation all right people
think more, more assets all right you have capital and yes you [Woman with a vault full of money]
appreciate having that capital but you'd appreciate it more if there was more of
it like it appreciated so a capital appreciation fund is one which focuses
on just growing the assets bigger and bigger don't really care how the capital
gets grown don't necessarily need dividends don't necessarily need minimum
p/e ratios don't necessarily need balance sheet covenants on the
investments you make don't care if it's exposed to the Venezuelan oil companies [Venezuela city landscape]
or the Australian dollar in a cap app fund well you just want the dough to [Money falls into flower pot]
grow and this ethos is in contrast to other flavors of funds which for example
need to throw off cash in the form of dividends like in a growth and income
fund or interest like in a bond fund like you know it's cash people need to
live on right so those have to do a capital appreciation does not so what's
a typical investment in a capital appreciation fund well usually be
something like a mega trend tech stock that just grows or appreciates with time [Man typing on laptop]
and really doesn't throw off much if any of a dividend like Amazon, Netflix
Facebook, Google those guys so think of a capital appreciation fund is the body [Man wearing underpants in a locker room]
builder of the mutual fund world it just wants to grow everywhere
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