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Types of Mutual Funds
Types of Mutual Funds
Open-end funds
Closed-end funds
Funds classified by asset class
Open-end funds
The vast majority of mutual funds are open-end funds
These funds issue or buy back their shares on a daily basis
The number of shares outstanding changes daily
Shares always trade at par value (never at a premium or discount to underlying value)
Closed-end funds
Very few funds are closed-end funds
Rarely issue new shares or buy back old shares
Fund shares trade on stock exchanges like normal stocks
Usually trade at a discount to net asset value
Never buy a closed-end fund which is trading at a premium
Funds classified by asset class
You can buy a fund for almost any asset you want
- Convertible bonds
- Adjustable rate mortgages
- Real estate
- Gold
But the normal asset classes, and their approximate long-term returns are
| Inflation | 3% |
| Money market funds | 3.5 |
| Long-term US bonds | 5.5 |
| Large company stocks | 10 |
| Small company stocks | 12 |
After inflation and taxes, only stocks have a positive return
Remember that because of compounding, improving your returns by a few percent enables you to greatly increase your wealth over long periods of time