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A mutual fund is managed in much the same manner as an individual portfolio. The one key difference is that there are a lot of investors putting their money into a mutual fund. The mutual fund's manager is bound to follow the investment path that would most likely be successful in reaching the mutual fund's goal or objective. Since there are a variety of investors seeking to invest varying dollar amounts, each fund must state explicitly what it is attempting to achieve.
There are as many different mutual funds as there are classifications of investments. Large cap stocks are purchased by large cap mutual funds, small cap stocks by small cap mutual funds.
Mutual funds can be classified as stock or bond funds, fixed income, dividend funds, large, small and medium cap funds, domestic and international funds, growth funds and even foreign market funds. There is usually a mutual fund for any investor. There are also no-load and loaded funds, that refer to whether an investor has to pay a fee upfront to invest in the fund, or whether the fee is included in the fund's expenses.
An example of a growth mutual fund is the T. Rowe Price New America Growth Fund. The fund is comprised of almost 93% domestic stock, approximately...
It is down almost 17% for 2008 (which could mean that it is a good time to buy). The fund holds mainly large cap stocks and the manager) in all likelihood) is continuing to dollar cost average as the large cap stocks continue lower in value.
Since small cap stocks have beaten the large cap stocks over the last five years, many industry analysts believe that it is now a good time to start purchasing, especially considering the fact that many of these large cap companies are now sporting low P/E's and have a lot of room for upward movement.
A good investment advisor realizes that the market will continue to fluctuate but that good companies will (likely) always be around, and that by investing in companies that provide essential products, then in the long-run their investments will provide a higher annual return than fixed income products with a lower risk than small cap growth companies.
References
Investor Words (2008) Capitalization, http://www.investorwords.com/714/capitalization.html, Accessed September 7, 2008
Value Line (2008) Stocks covered in the Value Line investment survey, http://www.valueline.com/dow30/, Accessed September 7, 2008
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