Investors are fortunate to have a number of financial instruments at their disposal that generate returns far above traditional checking and savings accounts at the bank. A popular but non-liquid investment is the purchase of property which pays dividends in the form of rent. Another popular but commodified investment is gold or gold futures which are considered a safe haven during times of market turmoil. Perhaps the most popular in the United States today is stocks, in which some 50% of households participate either through direct investments or through their retirement accounts.

The downside to stocks is that should the parent company of the shares do poorly, then the entire investment may suffer. Sometimes the fortunes of the main company are catasrophically affected by poor earnings or even events beyond control. People who have had stock in their retirement accounts understand the pain of seeing their savings evaporate in light of plummeting share prices.

In order to take advantage of the stock market but avoid the volatility of single stocks, financial companies have come up with mutual funds. A mutual fund is effectively a bundle of different stocks. Price fluctuations are damped out in the bundle, because on average the down movement of one stock is balanced by the up movement of another. Furthermore, as the economy expands and companies grow, the mutual fund should also rise in price per share.

Stock mutual funds can belong to a class known as high yield mutual funds. More interestingly, mutual funds may contain more than stocks. Investors may also pick bond funds, real estate funds, or commodity funds. Each type lies along an independent financial axis so that investors benefit from further diversification by participation in each.

As mentioned before, bond funds are mutual funds which contain many bonds. Bond may include United States Treasuries as well as corporate debt which show a distribution in length of maturity as well as yield. Sometimes bond funds are dividied into short, medium and long term, three terms that describe the maturity length of the component bonds.

Another type of mutual fund is one that contains real estate investments. These could be bundles of mortgages processed through Fannie Mae, Freddie Mac or Ginnie Mae. These mortgages are popular because of perceived high quality and stable returns from homeowners who are loathe to default on payments and give up their homes. The financial crisis of 2007 has tarnished real estate investments to some degree but GNMA funds remain popular as they continue to be composed of higher quality mortgages.

Finally, commodity funds are made up of financial instruments that derive their value from underlying commodities. Commodities usually refer to exploitable minerals or fuel such as gold, silver, petroleum, or farmed products like soybeans and oranges. The value of commodity funds goes up and down in accordance to scarcity and demand of the underlying commodities.

No load index funds are for the investors who are wary of fees but would like to open a position in the relative safety of mutual funds.

By: Nada Miller

http://highyieldmutualfunds.weebly.com/