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Invest in Mutual Funds that Invest in Stocks
from Investorama.com
Most mutual funds invest in stocks, and these are called equity funds. While mutual funds most often invest in the stock market, fund managers don't just buy any old stock they find attractive. Some funds specialize in investing in large-cap stocks, others in small-cap stocks, and still others invest in what's left, mid-cap stocks.
"Cap" is shorthand for capitalization, and is one way of measuring the size of a company—how well it's capitalized. Large-cap stocks have market caps of billions of dollars, and are the best-known companies in America. Small-cap stocks are worth several hundred million dollars, and are newer, up-and-coming firms. Mid-caps are somewhere in between.
Mutual funds are often categorized by the market capitalization of the stocks that they hold in their portfolios. But how big is a large cap stock? Formulas differ, but here is one guideline:
Small-cap stocks < $500 million
Mid-cap stocks $500 million to $5 billion
Large-cap stocks > $5 billion
Equity fund managers usually employ one of three particular styles of stockpicking when they make investment decisions for their portfolios. Some fund managers use a value approach to stocks, searching for stocks that are undervalued when compared to other, similar companies. Often, the share prices of these stocks have been beaten down by the market as investors have become pessimistic about the future potential of these companies.
Another approach to picking is to look primarily at growth, trying to find stocks that are growing faster than the market as a whole or than their competitors. These funds buy shares in companies that are growing rapidly, often well known, established corporations.
Some managers buy both kinds of stocks, building a portfolio of both growth stocks and value stocks. This is known as the blend approach.
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