Stock Funds

Stock Funds, also known as Equity Funds, can yield higher returns, but pose greater risks. Stock mutual funds invest pooled amounts of money in the stocks of public companies. Stocks represent part ownership, or equity, in companies, and the aim of stock ownership is to see the value of the companies increase over time. Stocks are often categorized by their market capitalization (or caps), and can be classified in three basic sizes: small, medium, and large. Stock Funds are considered to be more risky than most other types of funds, such as bond funds or money market funds. Along with the greater risk, however, comes the potential for greater returns. Over long periods of time, equities have historically outperformed both bonds and cash investments, and when stocks do well, stock mutual funds naturally follow suit. But not all stock funds are alike — these funds can vary greatly according to their stated objectives, their style of management, and the types of companies in which they invest. The prices of the stocks of companies in which the funds invest may fluctuate based on changes in the companies’ financial condition and on overall market and economic conditions. This can affect the performance of a stock fund. Some stock funds attempt to minimize these risks by spreading out (”diversifying”) their investments among different companies, industries, and markets. Equity fund managers employ different styles of stock picking when they make investment decisions for their portfolios. Some fund managers use a value approach to stocks, searching for stocks that are undervalued when compared to other, similar companies.