Good Morning DINKS. Today is the first post in a new series we are starting called Where Are DINKS Investing? This series will highlight different types of investments, where they invest, what they buy, why we should have them, and how we can buy them. As a Financial Planner I have my own preference of my favourite Mutual Funds that I recommend to clients based on their personal needs. But what I buy in my own personal Investment Portfolio and what I recommend for my clients are two different things.
Before we invest we should definitely know what we are getting into. This ensures that we are buying the absolute best investments for our personal Investment Portfolio. Our first post in this series will discuss the different types of Equity Mutual Funds that are available for investors to purchase.
I know that some people prefer to buy individual stocks over a pool of investments such a Mutual Fund. But the truth is that Mutual Funds have several advantages for investors. Mutual Funds are a diversified investment, they allow investors access to different stocks of many companies without having to place a trade order for each individual stock and without having the required minimum investment amount. We like to have portfolio diversification because we never want to put all of our investment eggs into one basket.
Mutual Funds are a diversified investment within themselves, but they can also be used to diversify our investment portfolio. If we buy a Bond Mutual Fund there will be several different types of Bonds with different interest rates and different maturity dates all within one single Bond Fund. However, we don’t want to only have Bond Mutual Funds in our investment portfolio; we can add Equity Mutual Funds into our investment portfolio for diversification and for the possibility of long term growth.
What types of Equity Mutual Funds do you own in your Investment Portfolio?
- Dividend Mutual Funds invest in large corporations that pay out dividends to their investors on a quarterly and/or annual basis. Dividends that pay out regular dividends are companies such as Financial Institutions and Banks or Insurance Companies. Some people consider Dividend Mutual Funds as Income Funds because they do pay out a regular income; however we have to remember that Dividend Mutual Funds invest in stocks of large corporations and therefore they are Equity Mutual Funds.
- Growth Mutual Funds offer long term growth to their investors. Growth Mutual Funds are one of the lower risk types of Equity investments. Growth Mutual Funds invest in companies that have been around for a long time and have proven growth over the years. Growth Mutual Funds should be purchased by investors who have a long time horizon. If you are in your 30’s Growth Mutual Funds are a great investment option for your retirement portfolio.
- Value Mutual Funds purchase stocks in companies that are considered to be undervalued. The potential of growth is greater with Value Mutual Funds because we hope that the stock price will skyrocket once the true value is realized. However the potential loss is also greater because it is possible that the Value Stocks were not well analyzed well and the company has no growth potential therefore the value of the Value Stocks will remain the same or decrease.
- Blue Chip Mutual Funds also invest in the stocks of large corporations, similar to Dividend Mutual Funds. However, the stocks of Blue Chip Mutual Funds do not necessarily pay out regular dividends to their investors. Blue Chip Mutual Funds usually invest in the stocks of large corporations that have a proven track record of consistent growth over the years. Blue Chip Mutual Funds usually invest in Fortune 500 companies.
- Small Cap (Capitalization) Mutual Funds invest in small corporations with very little assets. Similar to Value Mutual Funds Small Cap Mutual Funds offer the possibility of great growth potential if the new/small company grows at a good rate. However, if the small company or start up company fails then the losses could be astounding.
Photo by Jronaldlee