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An estimated 102.5 million investors — representing almost 46% of U.S. households — owned mutual funds at the end of 2020.1

Mutual funds offer a convenient way to participate in a broad range of market activity that would be difficult for most investors to achieve by purchasing individual securities. With almost 7,500 funds available on the U.S. market, you should be able to find appropriate investments to pursue your goals.2

Risk and Growth

The following overview describes some basic types of funds in rough order of risk, from lowest to highest. Although performance is never guaranteed, risk and growth generally have an inverse relationship.

Money market funds invest in short-term debt investments such as commercial paper and certificates of deposit, and are typically used as a cash alternative. Although a money market fund attempts to maintain a stable $1 share price, you can lose money by investing in such a fund.

Municipal bond funds generally offer income that is free of federal income tax and may be free of state income tax if the bonds in the fund were issued from your state. Although interest income from municipal bond funds may be tax exempt, any capital gains are subject to tax.

Income funds concentrate their portfolios on bonds, Treasury securities, and other income-oriented securities, and may also include stocks that have a history of paying high dividends.

Balanced funds, hybrid funds, and growth and income funds include a mix of stocks and bonds and seek to combine moderate growth potential with modest income.

Reasons to invest: 75% of U.S. households who own mutual funds cite retirement as their primary reason for investing. However, people invest in funds for multiple reasons.

Value funds invest in stocks of companies that appear to be undervalued by the market. They are more volatile than balanced funds, but typically offer dividend income and may have solid growth potential if the market recognizes the underlying value.

Growth funds invest in the stock of companies with a high potential for appreciation but low emphasis on income. They are more volatile.

Global funds invest in a combination of domestic and foreign securities. International funds invest primarily in foreign stock and bond markets. There are increased risks associated with international investing, including differences in financial reporting, currency exchange risk, economic and political risk unique to a specific country, and greater share price volatility.

Sector funds invest almost exclusively in a particular industry or sector of the economy. Although they offer greater appreciation potential, the volatility and risk level are also higher because they are less diversified.

Aggressive growth funds aim for maximum growth. They typically distribute little income, have very high growth potential, tend to be more volatile, and are considered to be very high risk.

Bond funds are subject to the interest-rate, inflation, and credit risks associated with the underlying bonds in the fund. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund’s performance. U.S. Treasury securities are guaranteed by the federal government. Dividends are typically not guaranteed.

1–2) Investment Company Institute, 2021-2022 (number of mutual funds as of January 2022)

© 2021 Broadridge Financial Solutions, Inc.

Provided by Jakob Bower, Written by Broadridge

The material provided does not necessarily reflect the views or opinions of Principal Financial Group®. Broadridge is not affiliated with any company of Principal Financial Group®.
Principal Financial Group® does not endorse the commentary, opinions or views of the content.

This material should be considered general information and should not be used as the primary basis for a financial decision.

It is provided with the understanding that the member companies of the Principal Financial Group® are not rendering legal, accounting, or tax advice.

Insurance products issued by Principal National Life Insurance Co. (except in NY), Principal Life Insurance Co., and the companies available through the Preferred Product Network, Inc. Securities and advisory products offered through Principal Securities, Inc., 888-774-6267, member SIPC. Principal National, Principal Life, the Preferred Product Network, and Principal Securities, Inc. are members of the Principal Financial Group®, Des Moines, IA 50392. Jakob Bower, Principal National and Principal Life Financial Representative, Principal Securities Registered Representative, Financial Advisor. Retirement Resource Group is not an affiliate of any company of the Principal Financial Group®.

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