Definition

• The goal of a mutual fund is to invest money in many different shares of stock at the same time, sometimes even in pieces of a single share. Since mutual funds aim to have many investors, they have a large pool of funds they can work with to make a variety of different investment choices, passing the earnings down to the investors. Funds are managed by broker companies.
  
  

Stock Risk

• The risk of the stock market can be seen as a starting point for investigating mutual fund risk. Stock risk depends entirely on the market's perception of the stock value. If the market thinks the stock value should fall --- i.e., investors are eager to sell --- then it falls. Investors make up their minds about individual stocks based on current economic conditions, the history and future plans of the company, and many different types of financial analysis. The most risky companies have the chance to grow quickly and earn investors money, or fail quickly and leave investors with a larger loss. The least-risk stocks change slowly.
  
  

Considerations

• Mutual funds follow the rules of the stock market --- to a certain extent. The problem is that not all mutual funds invest in stocks. There are bond funds that invest only in the bond market that businesses and governments create. There are money markets, which are cash investment funds that invest in particular assets, and hybrid accounts that combine different types of investments. The risks differ from one type of account to another.
  
  

Comparisons

• For mutual funds, the least risky account is the money market, which invests in particular assets: This account grows slowly but dependably. Bond mutual funds are the next least risky, because bonds can be more trustworthy than stocks, tend to change more slowly and are guaranteed if offered by the federal government. Most risky are stock mutual funds, but even these spread the risk out among different types of stock and are less risky than playing the stock market.
  
  

Fund Focus

• Mutual funds also different in their focus. Some funds may focus on particular countries, such as India and China, and their risks will depend on actions in those countries. Other funds focus on large companies or smaller companies and have the risks associated with those groups.