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Mutual funds now number in the thousands and run the gamut from conservative money market funds to ultra-aggressive stock funds. "Conservative" investments are those that have relatively modest risk/reward potential, with a lot of emphasis placed on preserving the value of your initial investment and/or on generating regular income. (That said, you can still lose money in a so-called "conservative" investment.) "Aggressive" investments are those that take on a greater degree of risk for potentially greater long-term capital appreciation.



A Spectrum of Choices

The following spectrum is designed to give you a general idea of the risk/return potential of various types of mutual funds. The funds are listed by their "objective," which helps to indicate what area of the market they focus on and what strategies their portfolio managers employ in pursuing their goal.



Low Risk/
Return
Potential
 
Money Market Funds


Objective:
Preservation of capital*; some current income

Typically invest in:
Short-term government securities
Short-term money market securities
Short-term tax-exempt municipal obligations

Bond Funds


Objective:
Current income; some capital appreciation

Typically invest in:
U.S. government bonds
U.S. corporate bonds
Tax-free municipal bonds
Foreign bonds (government and corporate)

Stock Funds


Objective:
Capital appreciation

Typically invest in:
Dividend-paying stocks
Growth stocks
Emerging growth stocks
International stocks
Emerging markets stocks

   
High Risk/
Return
Potential

* An investment in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in money market funds.

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