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Saving & Investing
by AARP Education & Outreach, AARP, April 7, 2009
Stock funds generally aim for long-term growth. They come in many shapes and sizes. A stock fund invests mainly in stocks and may focus on a particular type of stock or segment of the stock market, depending on its goal and strategy.
The fund's strategy focuses on the types of stocks the managers will target as potential investments. For example, this might involve stocks of well-established companies or stocks of small companies with high growth potential. Here are some common categories:
Aggressive growth. These are start-ups or relatively new companies that have not yet established themselves in their product or service market. They may also be companies in high-risk businesses, such as biotechnology or alternative energy.
Growth. These are companies that have moved beyond the phase of uncertainty but still have a lot of room to grow.
Value. These are well established companies with histories of consistent earnings and growth and with stock prices viewed as an attractive value by the portfolio manager.
Industry and sector. Some funds focus on a particular sector, such as high tech or health, or industry, such as software or pharmaceuticals.
Country or region. Investing isn’t limited to the United States. Some funds invest in specific foreign countries or regions, such as China or Europe.
Balanced. Balanced funds aim for the best of both stocks and bonds. They mix stocks and bonds to give you both growth and income. Balanced funds are generally more conservative and stable than strictly stock funds.
Asset allocation. Asset allocation funds invest in a mixture of stocks, bonds, and cash. The amount of each asset class is based on risk (such as conservative, moderate, and aggressive).
Index. Index funds are low-cost mutual funds that seek to mirror the performance of the broader markets they represent. Years of investment research show that mutual fund managers who try to buy and sell individual companies based on their own research have a hard time outperforming the broader markets over time. That makes index funds attractive. Read more about index funds.
Lifestyle. These funds aim to provide all the diversification that you need in a single fund. They are designed for consumers who don’t have much time or knowledge to make investment decisions. They can go by a number of different names, such as "retirement-target date" (for instance, the year 2040), life cycle, or asset allocation funds. With lifestyle funds that are designed for a specific age group or for a retirement-target date, the asset mix shifts as time goes on. As the group ages or moves closer to retirement, the asset mix automatically becomes more conservative. Be aware that the asset mix of these funds varies depending on the company.
The SEC Cost Calculator estimates the cost of investing in a mutual fund based on information you provide. The results should be compared for several funds or different classes of a single fund. Before you begin, take out the prospectus or profile for the funds you want to evaluate. You will need to plug in information from the expense section of these documents.
Calculate the expenses of up to three funds or classes of a single fund at the same time. You can find the information you will need to input into the analyzer in a fund's prospectus.
Find solid, low-fee stock funds at Morningstar.
AARP’s Money Matters Tip Sheet on Investing in Stocks has more information and action steps.
All the information presented on AARP.org is for educational and resource purposes only. We suggest that you consult with your financial or tax adviser with regard to your individual situation. Use of the information contained in this Web site is at the sole choice and risk of the reader.
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