MUTUAL FUNDS

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A mutual fund is a pool of money from many different people which is then invested in a portfolio of stocks, bonds and/or other investments to meet a specific objective. They are very attractive to the average person because you can actively participate in a wide range of investments which would be prohibitively expensive on your own. Because mutual funds are managed by professional money managers, you only need to know which funds are consistent with your own goals and tolerance for risk.

How do they work? Instead of buying individual stocks or bonds you are purchasing a share of the fund, making you a shareholder. You can buy and sell shares in mutual funds and while you hold your shares you can participate in the fund’s rewards (increase in value) and risks (decrease in value). Mutual funds are very easy to invest in, although, fees and costs can vary widely.

Visit our Frequently Asked Questions

Bond or income funds are made up primarily of bonds, so, what is a bond?

Basically, bonds are a way for a company (or government or agency) to borrow money. Bonds are issued with specific face values and interest rates (called “yield”). That’s why bonds are known as “fixed-income.” Bonds are generally also sold with a specific maturity date, meaning they have to be purchased back at a certain time at face value. This can make them stable, lower risk investments depending on the issuer.

As mentioned earlier, stocks and bonds do not behave the same way so having some money invested in bond or income funds – which can be lower risk – can be a good way to balance your risk and rewards. Just as in stock funds, there are many different kinds of bond funds. Some invest only in corporation-issued bonds, other concentrate on government bonds or agencies and some invest in a mix.

Certain bond or income funds can be good for investors who:

  • Are looking for a stream of income
  • Prefer less risk

Stock funds instantly give access to a wide range of different company stocks which most people could not afford on their own, with the added plus that the mix of stocks within a fund is managed by a professional.

Stocks are shares of ownership in a company, so if that company does well the stock will do well (increase in value). However, if that company does poorly, or even the industry it is in does poorly, that stock may lose value.

This means that stock funds offer the potential for higher rewards than bond or money market funds, but they also come with more risk as well. Depending on your tolerance for risk, stock funds can be ideal for individuals with long-term investment goals. That’s often why they are so popular for retirement funds and pensions.

There are many different kinds of stock funds catering to all styles of investors and objectives. This is good, because it means you can find the right ones for you.

Growth Funds

Stocks of companies considered to be fast growing.

Value Funds

Stocks of companies generally considered to be undervalued.

Large-Cap Funds

Very large “blue chip” company stocks that tend to pay dividends.

Balanced Funds

A combination of stocks and bonds in order to achieve some growth while attempting to manage risk.

International Funds

Mostly foreign-owned company stocks, or a combination of U.S. and foreign stocks. International securities are subject to political influences, currency fluctuations and economic cycles that are unrelated to those affecting the domestic financial markets and may experience wider price fluctuations.

Of course there are many other investments, along with funds that can provide a mix of different strategies. The important thing to remember is always choose with your goals in mind.

Stock or Equity Funds can be good for investors who:

  • Generally have a longer-term timeline
  • Do not mind some risk
  • Want to increase diversification
  • Like having lots of choices

Index Funds are called “passive” funds; the fund manager isn’t “actively managing” the stocks in the fund in an attempt to outperform what the market is doing, but simply trying to get as close to the index as possible.

What is interesting to many investors is that index funds generally do better than most other funds, and for that reason they have become very popular.

Index Funds can be good for investors who:

  • Can tolerate some risk
  • Prefer generally lower fees

When you want to keep a certain amount of cash on hand, whether for emergencies, purchases or simply while you decide how to invest it, money market funds make an ideal choice.

These funds generally invest in short-term, high-quality stable securities including U.S. Treasury bills and certificates of deposit, and are highly liquid meaning you can cash out quickly. Some money market funds allow you to write checks on them as well. They have by far the lowest risk of all styles of mutual fund, but the lowest potential reward as well.

Generally a money market fund offers returns higher than those of typical checking or savings accounts.

Money market funds can be good for investors who:

  • Have almost no tolerance for risk and prefer stability
  • Have a short-term investment objective
  • Prefer to maintain liquidity (can cash out easily)
  • Want to generate income

In general, money market funds are offered to meet the liquidity needs of clients, but unlike bank deposits, money market funds are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.

At a very basic level, an Exchange Traded Fund, or ETF, is an investment that tracks an index, a commodity, or a basket of investments like stocks or bonds.

ETFs that track an index or a commodity try to mirror the performance of that index (such as the S&P 500) or the price of that commodity. Because ETFs are marketable securities, they are sold in shares that trade like a stock.

If you own ETF shares, you are entitled to your portion of profits, such as earned interest and dividends paid.

  • ETFs provide both diversification and flexibility; there are no minimum requirements, so you can purchase just one share.
  • Expenses for most ETFs are lower than expenses for the average mutual fund. However, be aware of brokerage commissions that may be incurred when trading ETFs, as these will increase your investment costs.
  • Because ETFs trade like stock, they can generally be bought and sold throughout the day at market price, providing greater liquidity. This differs from the pricing structure of mutual funds, whose value is calculated at the end of the day.

To evaluate the best investment options for you, please contact your advisor.

Exchange Traded Funds and mutual funds are sold by prospectus. For more complete information, please request a prospectus from your registered representative. Please read it and consider carefully a Fund's objectives, risks, charges and expenses before you invest or send money. The prospectus contains this and other information about the investment company.

Investing involves risk, including the potential for loss of principal. Past performance does not guarantee future performance. The companies of National Life Group® and their representatives do not offer tax or legal advice. For advice concerning your own situation, please consult with your appropriate professional advisor.

Securities and investment advisory services are offered solely through Registered Representatives and Investment Adviser Representatives of Equity Services, Inc., Member FINRA/SIPC, One National Life Drive, Montpelier, VT 05604. (800) 344-7437. Equity Services, Inc. is a Broker/Dealer and Registered Investment Adviser affiliate of National Life Insurance Company.

Mutual Funds are sold by prospectus. For more complete information, please request a prospectus from your registered representative. Please read it and consider carefully a Fund's objectives, risks, charges and expenses before you invest or send money. The prospectus contains this and other information about the investment company.

Diversification does not assure a profit or guarantee against loss. Investing involves risk, including the potential for loss of principal. Past performance does not guarantee future performance. The S&P Composite Index of 500 stocks (S&P 500®) is a group of unmanaged securities widely regarded by investors to be representative of large-company stocks in general. An investment cannot be made directly into an index. Investment decisions for mutual funds should not be made solely on assumptions regarding interest and dividend distributions. Investors must consider other factors including but not limited to a fund’s objective, risk factors and expenses.

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