Investing Funds: Where To Start For Maximum Returns

Investing in mutual funds is a popular way to invest in securities. A mutual fund pools money from many investors to purchase a range of securities, such as stocks, bonds, commodities, real estate, and more. They are a practical, cost-efficient way to build a diversified portfolio. There are many types of investment funds, including mutual funds, exchange-traded funds (ETFs), money market funds, and hedge funds. When deciding where to invest funds, it is important to consider your investing goals and risk tolerance.

Where to Invest Funds

Characteristics	Values
Type	Mutual funds, exchange-traded funds (ETFs), money market funds, and hedge funds
Management	Actively managed or passively managed (index funds)
Investment Style	Broad-based or tightly focused
Investment Opportunities	Domestic and international stocks, bonds, commodities, real estate, and more
Costs	Management fees, transaction fees, sales charges, loads, and other expenses
Risk	Potential for loss, volatility, interest rate risk, inflation risk, credit and default risk, etc.
Returns	Historical and current performance
Accessibility	Open-end or closed-end funds
Regulation	Registered with the Securities Exchange Commission (SEC) and subject to SEC regulation

Mutual funds

There are many different types of mutual funds, but most fall into one of four main categories: money market funds, bond funds, stock funds, and target date funds. Each type has different features, risks, and rewards.

Money market funds have relatively low risks as they can invest only in certain high-quality, short-term investments issued by US corporations and governments. Bond funds have higher risks than money market funds because they aim to produce higher returns. Stock funds invest in corporate stocks, and there are several types, including growth funds, income funds, index funds, and sector funds. Target date funds hold a mix of stocks, bonds, and other investments, and the mix gradually shifts over time according to the fund's strategy.

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Exchange-traded funds (ETFs)

ETFs are an excellent vehicle to achieve an investor's goals, offering many benefits such as:

Low expense ratios and fewer broker commissions
Risk management through diversification
Access to many stocks across various industries
Actively managed ETFs have higher fees
Single-industry-focused ETFs limit diversification
Lack of liquidity hinders transactions

ETFs can be structured to track anything from the price of a commodity to a large and diverse collection of securities. They can also be designed to track specific investment strategies. Various types of ETFs are available to investors for income generation, speculation, and price increases, and to hedge or partly offset risk in an investor's portfolio.

The first ETF was the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index. Other popular ETFs include:

IShares Russell 2000 (IWM): Tracks the Russell 2000 small-cap index.
Invesco QQQ (QQQ) (“cubes”): Tracks the Nasdaq 100 Index, which typically contains technology stocks.
SPDR Dow Jones Industrial Average (DIA) (“diamonds”): Represents the 30 stocks of the Dow Jones Industrial Average.
Sector ETFs: Track individual industries and sectors such as oil (OIH), energy (XLE), financial services (XLF), real estate investment trusts (IYR), and biotechnology (BBH).
Commodity ETFs: Represent commodity markets, including gold (GLD), silver (SLV), crude oil (USO), and natural gas (UNG).

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Money market funds

Bankers' Acceptances (BA): Short-term debt guaranteed by a commercial bank
Certificates of Deposit (CDs): Bank-issued savings certificates with short-term maturity
Commercial paper: Unsecured short-term corporate debt
Repurchase agreements (Repo): Short-term government securities
U.S. Treasuries: Short-term government debt issues

Government MMFs: Invest at least 99.5% of assets in cash, government securities, or repurchase agreements that are collateralized by government securities.
Short-term credit (Prime) MMFs: Can invest in government securities and securities issued by banks, corporations, and other non-government entities.
Municipal MMFs: Buy municipal bonds and other debt securities, offering potential tax benefits to investors as earnings are typically exempt from federal and sometimes state income tax.
Standard MMFs: Designed with a minimum investment horizon of three months, offering the opportunity for higher yields by holding less liquidity, longer duration, and slightly lower credit quality.

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Hedge funds

When considering investing in a hedge fund, it is important to research the fund and its manager, understand the level of risk and fees involved, and ensure that the investment aligns with your personal investing goals, time horizons, and risk tolerance.

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Actively managed funds

Fidelity also offers actively managed funds, leveraging its global research analysts and portfolio managers to adapt to changing markets and select investments with potential to outperform. At Fidelity, 90% of their equity funds have beaten their benchmark over the manager's tenure. This demonstrates the power of active management, which has worked for the company for over 70 years.

When considering actively managed funds, it's crucial to examine the fund's management style, fees, and performance history. These funds typically have higher fees due to the active involvement of portfolio managers in selecting investments. Additionally, they may distribute more taxable capital gains as the portfolio manager trades more frequently.