Keep the Course: Investments 101–Stock Funds

Each Wednesday 401kBasics posts a new article in a weekly series called “Keep the Course”. This series is designed to give the average consumer information on how to keep their 401k plan on track! Your feedback or suggestions on future articles is welcome.

Our third article in our mini series on investments will review Stock Funds. A stock fund is a vehicle that looks to provide growth and income to the investor. As discussed in our previous article, while Bonds are a debt instrument, a stock represents ownership in a company. Below are some common terms used in describing stock funds.

Funds are named based on the goal:

  • Growth Fund: A growth fund aims to invest in companies that are expected to have above average growth and earnings in the near future.
  • Value Fund: A value fund invests in companies that are considered undervalued at the time due to various reasons.

Stock funds are also named based on the size of the companies they invest in:

  • Small Cap: These funds invest in companies with market capitalization of $2 billion or less.
  • Mid Cap: The market capitalization of these funds are between $2 billion and $10 billion dollars.
  • Large Cap: These funds have a market capitalization of over $10 billion dollars.

Stock funds bare more risk than cash equivalents and bonds as they are subject to market risk. They are considered long term investments and are designed for those who don’t need access to their money in the near future, as the value will fluctuate based on the stock market.

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

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