|Investors > Mutual Funds > Fund Classifications|
You take risks when you invest in any mutual fund. You may lose some or all of the money you invest (your principal) because the value of the financial assets (or securities) held by a fund goes up and down. Each kind of mutual fund has different risks and rewards. Generally, the higher the potential return (the money you can make), the higher the risk of loss. Before you invest, you must decide whether the goals and risks of any fund you are considering are a good fit for you.
The three main categories of mutual funds a Teenvestor should be concerned with are money market funds, bond funds, and stock funds. There are a variety of types within each category.
Money Market Funds
Most bond funds have credit risk, which is the risk that compa-nies or other issuers whose bonds are owned by the fund may fail to pay their debts (including the debt owed to holders of their bonds). Some funds have little credit risk, such as those that invest in gov-ernment bonds. But be careful: nearly all bond funds have interest-rate risk, which means that the value of the bonds they hold will go down when interest rates go up. Because of this, you can lose money in any bond fund, including those that invest only in government bonds.
Long-term bond funds invest in bonds with longer maturities (length of time until the final payout). The values (NAVs) of long-term bond funds can go up or down more rapidly than those of short-term bond funds.