The following checklist contains some specific suggestions that can help you decide which types of funds may best suit your personal situation and goals:
- If your investment goals are mainly long-term, consider stock (equity) funds.
- If your investment goals are mainly short-term, consider bond (fixed income) funds, especially money-market funds.
- If you feel able to tolerate a relatively high degree of risk, consider growth funds, aggressive growth funds, emerging market funds, or mid cap and small cap funds.
- If minimizing risk is important to you, consider bond funds (including corporate bond funds), balanced funds, growth and income funds, or large cap funds.
- If you want to target specific regions or industries you think will grow, consider international or sector funds.
- If you want to minimize the costs of investing, consider index funds.
- If you want to minimize the taxes on your investment profits, consider municipal bond funds.
Obviously, overlap exists among these various personal goals. A single investor — call him Matthew for the sake of illustration — may have two or three different yet complementary investment preferences.
For example, say he wants to invest for the long-term goal of retirement, minimize risk, and minimize the tax bite on his investment profits. In light of these three preferences, Matthew may want to consider more than one category of funds, looking for the fund type that offers a comfortable balance among different factors. So zeroing in on one category of fund isn’t necessarily an obvious or easy process. The checklist can help you begin the process of sorting out the possibilities.
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