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A Good Foundation for New Investors

Few investors have the time or expertise required to manage their investments and thoroughly research the 8,000 stocks and two million bonds being traded in the U.S. on any given day. That is why professional portfolio management through mutual funds can be especially valuable.

If you are new to investing, you may want to consider a mutual fund rather than individual stocks or bonds. Mutual funds are a way to invest in the stock market without buying individual stock. When you purchase a mutual fund, you receive, in effect, a fractional share of all the stocks within that fund. Mutual funds offer professional management, liquidity, ease of access, and risk reduction through diversification. However, the principal value and interest of an investment in any mutual fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

Most mutual funds allow for small amounts to be invested over time. They also spread your investments over a variety of stocks, so you are less exposed to large fluctuations that can drive an individual stock up or down. Mutual funds are a popular choice for retirement accounts because you can invest a set amount each month, or each paycheck.

Mutual fund managers are experts in the stock and bond markets. There are a large number of mutual funds, and the most common types are: stock funds, bond funds, and money market funds.

Stock Funds

Stock funds are also known as equity funds. Stock funds represent ownership (or equity) in companies. Stock funds invest primarily in common stocks and other equity securities and are well suited for long-term goals such as retirement or a child’s college education.

Stock funds may offer profits in the form of dividends and capital gains – both can affect the value of your shares in a mutual fund. Because a number of factors can affect stock prices, stock fund investment carries a higher risk than other mutual fund categories. However, even within the range of stock funds there are various risk levels, depending on the fund’s investment style. It has been shown that, over time, equities may provide better returns than other investments.

Bond Funds

Bond Funds can give a portfolio stability – an anchor, so to speak – providing balance to your overall investment strategy. Buying a bond is like giving a company or a government agency a loan. Bonds are commonly referred to as fixed income investments because they pay a fixed rate of return. Bond funds can generate current income for investors as well as offer the possibility of future growth in fund share value.

Depending on the goals of the fund, bond funds purchase corporate bonds and government agency obligations (i.e., municipal bonds) with various maturity dates to spread risk. While bonds are generally considered to be less volatile than stocks, they are not without risk. The market value of the bonds an investor holds can decrease if interest rates rise. Further, bonds carry credit risk, which involves the possibility that the bond issuer is not able to pay income or interest payments or to repay the principal.

Bond funds are available as taxable investments or tax-free investments. An important consideration when selecting the type of bond fund is your income level and tax situation. Capital gains achieved from the sale of bond fund shares are subject to income taxes.

Money Market Funds

Money market funds invest in short-term (usually one year or less), high-quality securities, such as U.S. Treasury bills and certificates of deposit. Money market funds are often used as a savings account alternative and offer same-day liquidity as well as check writing privileges.

The primary purpose of a money market fund is to preserve investment capital and earn interest for the investor. Money market funds come in both taxable and tax-free varieties, and try to maintain a constant price of $1.00 per share, although there is no guarantee that they will be able to do so. That means there is little exposure to capital gains tax. Compared to other kinds of investments, money market funds have very low risks associated with them. However, since they are neither guaranteed nor insured by the U.S Government or any other entity, money market fund investments are not totally risk free; it is possible to lose money in a money market fund.

Want to Know More?

Contact a registered representative at Western-Southern Life Assurance Company to review the many options we offer, including the following: single-premium immediate annuities (SPIA); fixed annuities; variable annuities; a family of mutual funds comprised of stock funds, bonds funds, and money market funds; and a variety of life insurance products, including variable universal life.

Securities offered through W&S Brokerage Services, Inc.*, 400 Broadway, 4th Floor, Cincinnati, OH 45202. W&S Brokerage Services, Inc., and Western-Southern Life Assurance Company are both members of Western & Southern Financial Group.

*member FINRA / SIPC


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Last Updated: 12/14/2017