Forward Bank

Even if you’ve been investing for years, the language of investing can sometimes feel confusing. Getting a better grip on investing terminology (which is often a complex combination of legalese, colloquialisms, and slang) can help you feel more confident when evaluating your financial strategy. While individual stocks are only a tiny piece of the overall investment arsenal, and we believe that for most clients, balance is key — so let’s review a few key account types that every investor should know.

Mutual Funds: A mutual fund is a lower-cost way to invest; it pools your investment dollars into a group of assets along with many other investors. Mutual funds are handled by a portfolio manager who uses the pooled funds to buy into stocks, bonds and short-term debt, and any trading happens once the markets close, rather than throughout the day. They tend to be popular with investors because they typically build in diversification (investing in a range of companies and industries), and usually set low dollar amounts for buying in to the fund. Mutual funds generally fall into one of four categories:

• Target date funds (designed for individuals with specific retirement dates in mind)
• Stock funds (which invest in corporate stocks) Bond funds (many different types – corporate and government issued are common ones you may have heard about – all aiming to produce stable returns)
• Money Market funds (which invest in high-quality, short-term investments)

Exchange-Traded Funds:ETFs combine elements of mutual funds and conventional stocks to create unique investment opportunities. An ETF is a pooled investment fund (like a mutual fund), but ETF shares are bought and sold at varying prices throughout the day (like conventional stocks). Certain ETFs have tax advantages — you can own ETFs in taxable, tax deferred or tax-free accounts — so we should discuss how this may impact your overall financial or retirement plan.

Index Funds:Index funds take one of multiple approaches to track the returns of a market index, like the S&P 500. These investment vehicles share similar characteristics with mutual funds and ETFs, but they are designed to mirror the performance of a particular market index (small cap stocks, emerging markets, etc.). Index funds follow a passive investment strategy, seeking to match the risk, return and long-term performance of an index. Because of this, they usually have lower expense ratios.

You’re now armed with a bit more knowledge about a few of the many available investment options that can make up the backbone of your financial plan. However, knowing exactly which option is best for YOUR unique situation is a whole different matter. Contact a financial advisor today to set up some time to review your plan. We’ll make sure everything is on track and can answer any additional questions you may have.