When a large group of investors pool together funds in order to invest in “securities” like stocks and bonds, this is called a Mutual Fund. These funds are run by money managers, the fund’s capital is invested is invested with the goal of generating capital gains and income for the pool of investors. Mutual Funds put the investor in a strong position via strong liquidity, diversification and good money management.
Combining stocks and bonds is called balanced mutual funds and looks to draw from both growth and current streams of income. There are various factors that decide what stock-bond ratio you should be looking to create financial goals, risks acceptance and age. Usually when looking to take an aggressive position vis-à-vis the market one will stack their portfolio with a higher ratio of stocks than bonds. A conservative trader might take more bonds as this is more long term and less volatile.
A Life-cycle mutual fund is a fund intended for investors nearing their retirement. The fund automatically adjusts stock-bond ratio in a portfolio as it draws closer to a retirement date. Generally, as the maturity date draws closer the portfolio becomes more conservative and will include more bonds. This type of fund is especially attractive for those in a 401k program because adjustments are made automatically and the investor can breathe easy. When making the one time investment into the Life-Cycle one can choose between aggressive, moderate or conservative levels and the fund will make adjustments as needed between the stock, bonds and cash ratio.
This fund aims to provide an unimpeded cash flow to the investor, while allowing the fund holdings to continue to rise in value. These funds primarily invest in government and corporate debt. Although there are some risks involved in bonds like any other investment, bonds and Income Funds have a lower risk factor. This lower risk factor is due to the fact that the holder receives the principal if he/she keeps the bond until its maturity. In addition, bond funds offer good liquidity, because it is relatively easy to sell off a bond.