A fund that combines stocks and bonds is called a balanced fund. The stock/bond mix is defined in the fund’s prospectus with a set minimum and maximum percentage for each.
If you're looking for income and modest growth, a balanced fund may be the right choice for you.
An equity fund invests primarily in stocks. These funds are typically defined by the types of stocks they hold.
For example, you may have heard of small-cap, mid-cap and large-cap funds. These stock funds are categorized by the size — the market capitalization — of the companies they hold. The size of the companies a fund owns is related to how much risk it takes on because owning smaller, less established companies may be riskier.
At Edward Jones, instead of focusing on market capitalization, we think of stock funds in terms of their investment style. These styles include:
Growth and income funds — These funds typically pay a dividend, so investors can make money from taking or reinvesting the dividend income and from the growth of the fund itself.
Growth funds — These funds usually pay a small or no dividend, focusing instead on choosing stocks with growth potential.
Aggressive funds — These funds hold more aggressive stocks, such as those of smaller or younger companies. Some aggressive funds are considered specialty funds because they focus on only one sector, such as health care, commodities or real estate.
Stock funds can also be categorized by whether most of the holdings are domestic, international or both. An equity fund’s prospectus will detail the types of stocks it owns and in what percentages, as well as its objective.
Bond funds invest in bonds (municipal, corporate and government) and other investments considered fixed income, such as money market funds or even cash. The exact type of underlying investments in the fund will depend on its focus. Because the types of bonds inside a bond fund can vary, you should consider:
Duration — How sensitive the fund will be to interest rates, factoring in when interest payments are made as well as the final payment.
Credit quality of underlying investments — For example, government bonds are rated AAA, whereas high-yield or “junk” bonds are rated BB and below. The percentage mix of the quality of the investments will be defined in the prospectus.
Maturity — The average number of years until the par (or face) value of the underlying bond will be repaid.