The less drastically a fund's returns fluctuate up and down relative to the returns of similar funds, the lower its risk is. You're less likely to lose money invested in a low-risk mutual fund. Experts point out that you can own stock and bonds in a broad array of U.S. and foreign companies and governments just by holding three or four broadly diversified mutual funds. This diversification is important, experts say, because different types of investments fall in and out of favor and can lose value. Over the past 50 years, according to Family Money magazine, domestic small-cap stocks have grown almost 15 percent annually.
Growth stocks are securities that investors expect to increase in value over the long term.
Over the past few years, many computer and software companies have been considered growth stocks, because the market they serve has grown so rapidly. Value stocks are those that experts consider underpriced. Some companies have strong, consistent earnings and relatively low expenses, but are still ignored or undervalued by investors. Important but non-glamorous industries like utilities and chemical manufacturing are more likely to be value stocks. Mutual funds often specialize in buying either growth or value stocks.