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Order your copy of Building Wealth in a Paycheck-to-Paycheck World by Paul Petillo. It is packed with safe, proven wealth-building strategies that cover all the major components of a balanced financial plan, including:
Growth Funds
In an Income fund, the goal the goal is to provide income while protecting capital. A fixed income fund invests in securities that will preserve capital and give you an income. There are more conservative options in the mutual fund world, and we covered them in detail here. Value investing uses a criteria that is based on finding companies that are under valued whose growth may have slowed but at the core, they remain good companies from a fundamental standpoint.
Growth funds, however, invest in growth stocks. Growth, as the name implies, is a strategy designed to grow your money.
This is best done by a mutual fund whose manager will look for companies that are poised to grow their market share, their profits, and their value. When they do that, it is the shareholders of that company that benefit. because you are a shareholder in that company by benefit of your mutual fund, you receive a premium for your investment.
As we have found out, mutual funds come in a ll sorts of styles and shapes which means simply, all levels of risk.
Safe in the land of the growth fund is often referred to as the index. These, also come in many varieties, all basically designed to do the same thing: mimic the market or a particular group of stocks.
An index fund might be chartered (which is a document that directs the investment strategy of the fund manager) to buy the all of the companies of the S & P 500. This is a list of the 500 largest capitalization stocks. The mutual fund manager would decide how much of each company the fund will buy (this called weighting) and purchase a weighted number of each company. Other indexes follow largest groups such as the Wilshire 5000, or even the total market with some of everything, or perhaps a blue-chip index or the Dow 30.
These kinds of funds are considered passively managed because the manager does very little to the fund on a day to day basis. The index is bought. New money is used in the purchase of more shares in the same companies and in the same amounts. In an index situation, the fund just follows along without much in the way of additional direction from the manager or his team.
This is why index funds should be very inexpensive to manage. Rewards can be good for this type of investing. Vanguard's John Bogle made himself legendary with his fund, now the largest in the land, even after some rough initial years. He is still out stumping for indexing even now. In a speech given to New England Pension Consultant's Client Conference he advised his listeners that an all-index market fund was the best way to ensure diversity in any market.
Actively managed mutual fund are another thing altogether, In these types of mutual funds, the manager's skill and expertise come into play, also following an investment charter or strategy.
When buying a growth fund, the importance of no-load (no fees upfront or at the end), low expenses (set 1.5% as the ceiling of acceptability) and the ability and tenure (or how long they have been running the fund - a minimum of three years) and determining which fund becomes much easier.
Investing in a growth fund also requires you to understand two things: First, there is risk of losing your money. These funds do not protect capital. They invest in companies whose prospect of growth is good but not always proven. In the case of aggressive growth funds, the risks are much higher. Second, there is a risk of losing your money.
Growth funds run the gamut trying to cover each of the risk tolerances that investors might have. From large capitalization to the smallest companies, from unproven companies without profit but full of promise to companies who pay dividends and grow at a slower rate
Growth is an absolute necessity for younger investors. A well thought out necessity for middle aged investors. Older investors will need to practice diversity and balance.
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