First we have domestic (US funds) and international funds (everywhere else). I assume that other countries also have their own domestic funds. International funds can also be separated into area on the world or types of countries (emerging markets vs first world countries). We also have value and growth funds. Growth funds are easy to understand, they are stocks that we believe will grow well, normally do not have dividends but are more risky, whereas value funds are thought to be undervalued in price and that are likely to pay dividends. I prefer value funds but growth funds are needed in your asset allocation.
Stocks are also broken down by the capilztion of the company. Market capitalization is calculated by multiplying the number of a company's shares outstanding by its stock price per share. A large cap fund has stock wit over $5 billion capitalization, a medium cap has between 2billion and 10 billion. See some crossover there? A small cap fund definition varies depending on the brokerage company but normally is between $300 million and $2 billion. I find it harder to find international funds that separate into all the different caps (I often find large and small), and I have never found a emerging market fund that did so.
And last but definitely not least, you can buy real estate on the stock market using REITs. REITs can either be residential or commercial.
This is very complicated and can get confusing when people are starting off with it. Feel free to ask questions or clarifications, I'll be checking back. My next article will go into my preferred allocation, why I deviate from it and why that is ok.
No comments:
Post a Comment