How to Invest in the Right Mix of Mutual Funds

4 Minute Read

If you’ve ever tried to research mutual funds on your own, you know it’s easy to feel overwhelmed. You want to follow Dave’s investment advice by investing in good growth stock mutual funds, but you keep getting lost in the lingo.

How are you supposed to build a solid nest egg if you can’t even make sense of your options?

We asked Brant Spesshardt, an investing professional in Raleigh, NC, to clear up the confusion. These three steps can help you choose the right mix.


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1. Understand the Terminology

Mutual fund companies, 401(k) plans, and third-party rating services like Morningstar often use different labels to categorize funds. That’s why Brant says it’s important to have a firm grip on your investment goals.

Let’s delve deeper into the mutual fund categories Dave recommends and why he recommends them.

  • Growth and income: These funds create a stable foundation for your portfolio. Brant describes them as big, boring American companies that have been around for a long time and offer goods and services people use regardless of the economy. Look for funds with a history of stable growth that also pay dividends. You might find these listed under the large-cap or large value fund category. They may also be called blue chip, dividend income or equity income funds.
  • Growth: This category features medium or large U.S. companies that are still experiencing growth. Unlike growth and income funds, these are more likely to ebb and flow with the economy. For instance, you might find the latest “it” gadget or luxury item in your growth fund mix. Common labels for this category include mid-cap, large-cap, equity or growth funds.
  • Aggressive growth: Think of this category as the wild child of your portfolio. When these funds are up, they’re up. And when they’re down, they’re down. This volatile growth usually accompanies smaller companies. “So small-cap funds are going to qualify—or even a mid-cap fund that invests in small- to mid-sized companies,” Brant says. But size isn’t the only consideration. Geography can also play a role. “Aggressive growth could sometimes mean large companies that are based in emerging markets,” he adds.
  • International: International funds are great because they spread your risk beyond U.S. soil. That way your retirement fund doesn’t totally tank if America goes through an unexpected downturn. It also gives you a chance to invest in big non-U.S. companies you already know and love. You may see these referred to as foreign or overseas funds. Just don’t get them confused with world or global funds, which group U.S. and foreign stocks together.

2. Don’t Chase Returns

It can be tempting to get tunnel vision and focus only on funds or sectors that brought stellar returns in recent years. But Brant cautions against that strategy.

“Nobody can time the market,” he says. “Investors just have to remember you never want to put all your eggs in one basket. It’s long-term, and you want to try to keep your investments as simple and as boring as possible.”

Before committing to a fund, take a step back and consider the big picture. How has it performed over the past five years? What about the past 10 or 20 years? Look for mutual funds that stand the test of time and continue to deliver strong long-haul returns.

Nobody can time the market. It’s long-term, and you want to try to keep your investments as simple and as boring as possible.
—Brant Spesshardt, investing professional

3. Eliminate the Guesswork

If Dave has said it once, he’s said it a hundred times: Never invest in anything you don’t understand. No one cares about your future as much as you do, so it’s in your best interest to take charge of your own mutual fund education.

But sometimes you need a little help with translation. And that’s where an expert comes in handy.

A good investing professional can help you sort through the lingo and determine whether the mutual funds you think line up with your objectives really do. Be clear about your goals up front to ensure you and your pro are on the same page before you make selections.

Want to partner with a pro but don’t know where to start? Try SmartVestor! It’s an easy and free way to find investing help near you.

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