When you are willing to invest in mutual funds for Supplemental Retirement Income Planning, you have a very large number of options. It is always important to analyze the plan, its limitations and the risks you will be running. This will make it easier for you to narrow your alternatives. It would also be helpful to get in contact with a professional Retirement Income Planning spesilist.
Mutual funds are classified into 3 main categories. These differ in regards to their respective risks, rewards and features. They are money market funds, bond funds, which are also known as “fixed income” and last but not least, stock funds, which are also known as “equity funds”. Lets take a deeper look at each one.
Money Market Funds invest in some high-quality but short-term investment that can be issued by the U.S. government, U.S. corporations and/or local governments. These funds attempt to keep the value of a share in a fund, called the net asset value (NAV) at a stable $1.00/share. The returns for these funds are traditionaly lower than the other two types of funds. Because of this fact, money market fund investors have to be aware about the dreaded “inflation risk”. Although Bond Funds are a bit more risky than money market Funds, most of the time, risks can be controlled with greater certainty than with stocks. In addition, due to the fact that there are many types of Bund Funds, their risks and rewards will greatly vary. These risks may or may not encompass credit risk, which refers to the possibility that issuers whose bonds are owned by the fund do not pay their debts; interest rate risk and/or prepayment risk, which is associated to the chance that a bond be “retired” early.
Tthere are large differences between stock funds. For example, Growth Funds are focused on stocks that provide large capital gains, Income Funds invest in stocks that pay regular dividends, and Sector Funds are specialized in particular industry spesific segments. In general, they present a medium-to-high level of risk.
In closing, people who are willing to invest in a fund that combines growth and income, which are for sure key factors, may find mutual funds an interesting balanced alternative choice for Supplemental Retirement Income Planning.