The different Types of Stock Funds

There are hundreds if not thousands of different types of stock funds. Some are what I call “wild and wooly.” These funds are made up of whatever stocks the fund manager likes. They can be quite diverse and include small-cap, mid-cap, and high-cap stocks. Such a fund’s success depends entirely on the skill of the fund manager. If you’re interested in that kind of wide diversity, look at the fund manager, not at the basket of stocks in the fund.

Since I have already mentioned them, some funds focus on a particular type of stock that is identified by the company’s capitalization. Basically this is a division of companies according to how much money they are worth. These are called small, medium, and large cap (cap for capitalization).

A popular and conservative type of fund is the index fund. This is an unmanaged fund that follows any of a number of different indexes such as the Standard & Poors 500 (the top 500 companies in the country) or the Nasdaq. These index funds have been very successful and are generally cheaper than other funds because they are unmanaged.

Funds can be found that follow a particular industry such as commodities, energy, agricultural, utilities, pharmaceuticals, precious metals, etc. If you believe that there is a particular industry that is doing well right now and is expected to do well into the future, go for it. For example, with China’s huge growth, commodity funds are a hot item. Because of the push for ethanol, agriculture is currently getting a big boost. On the other hand, the housing industry is a little shaky right now.

Some funds specialize in a particular philosophy more than in individual stocks. For example, you can buy socially responsible funds that do not invest in companies that sell things like alcohol, tobacco, or weapons. I wouldn’t be surprised if you can’t buy Christian mutual funds.

Some funds are designed to save money for college. They can get quite specialized.

You can buy funds that track foreign currencies and you can buy funds that invest in overseas stocks. Foreign funds can be high risk but many foreign stock exchanges are doing better than the US exchanges right now.

The types and numbers of stock funds are very large so there is something for just about everyone. As always, before investing in any stock fund, be clear about your financial goals and seek out the stock fund that best fits those goals.