Money $marts: Nice Assets

What About Mutual Funds?
Mutual funds are definitely a big part of many investors’ portfolios. So what’s the deal with them not being one of the asset classes? It’s because a mutual fund is actually a collection of stocks or bonds. So it’s not considered to be a totally different kind of investment.

Variety is the spice of life—in investing, too! As an investor, you get to choose from a range of options. Your main choices are stocks, bonds, cash, and mutual funds that buy stocks or bonds. The individual types of investments are called asset classes.

So, how do they vary? Mostly it’s that each asset class uses your money in a different way. When you buy a stock, you are actually buying a part of a company. But with a bond, you are making a loan to a company or to the government. That’s a pretty huge difference! But all investments have one thing in common: You use them to try to make money.

Most investors create their own special mix of different investments from the range of asset classes. That personal blend of asset classes, containing specific stocks, bonds, and cash, is called an investment portfolio. It’s where you can put your own special stamp on investing!

Even though bonds are a major asset class, they usually take a back seat in young investors’ portfolios. That’s because when you first start investing, it’s a great idea to focus more on investments that have the potential to really grow–like stocks.

Bonds are usually a more conservative investment. When you invest in a bond, you’re actually loaning money (usually to the government) for a set period of time. When the time’s up, you get back the amount of the loan, plus interest.

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