Aggressive Growth Funds:

Aggressive growth funds aim to maximize capital gains (buy low and sell high). These funds may leverage their assets by borrowing funds, and may trade in stock options.

If the market is going up, these are the funds that will benefit the most. Conversely, aggressive growth funds are the ones hardest hit in bear markets.

Growth Funds:

Growth funds are similar to aggressive growth funds, but do not usually trade stock options or borrow money with which to trade.

Most growth funds do a little better during bull markets, but do a lot worse than average during bear markets. Just as in aggressive growth funds, growth funds are not aimed at the short-term market timer.

Growth-Income Funds:

Growth-income funds are specialists in blue chip stocks. These funds invest in utilities, industrials, and other seasoned stocks.

They work to maximize dividend income while also generating capital gains. These funds are suitable as a substitute for conservative investment in the stock market.

Income Funds:

Income funds focus on dividend income, while also enjoying the capital gains that usually accompany investment in common and preferred stocks. These funds are particularly favored by conservative investors.

International Funds:

International funds hold primarily foreign securities. There are two elements of risk in this investment:

The normal economic risk of holding stocks; as well as the currency risk associated with repatriating money after taking the investment profits.

These funds are an vital aspect of many portfolios, but any individual fund may prove too volatile for the average investor as their sole investment.

Global funds:

International funds invest exclusively abroad, while global funds combine domestic and foreign shares in the same portfolio.

Regional Funds:

These funds confine themselves to a single foreign region, like Latin America, U.S.A., Europe or Asia.

When you buy one of these funds, you are betting on a single part of the foreign markets. Do you really know enough to make that sort of bet?

Asset Allocation Funds:

Asset allocation funds don't invest in just stocks. Instead, they focus on stocks, bonds, gold, real estate, and money market funds. This portfolio approach decreases the reliance on any one segment of the marketplace.

Precious Metal Funds:

Precious metal funds invest in gold, silver, and platinum. Gold and silver often move in the opposite direction from the stock market, and thus these funds can provide a hedge against investments in common stocks.

Sector Funds:

Mutual funds were actually invented so that investors with limited means could pool their money and thereby purchase a broadly diversified portfolio. That is why sector funds seem so definitely odd!

By specializing in the stocks of a single industry like technology, health care or financial services, these funds take the time-tested notion of diversification and toss it out the window.

Bond Funds:

Bond funds invest in corporate and government bonds. A common misunderstanding among investors is that the return on a bond fund is similar to the returns of the bonds purchased.

One might expect that a fund that owns primarily 8 percent-yielding bonds would return 8 percent to investors. In fact, the yield from the fund is based primarily on the trading of bonds, which are extraordinarily sensitive to interest rates.

Long-Term Bond Funds:

Long-term bond funds performe well when interest rates came down. But when you buy funds, the goal isn't simply to own funds that might perform well. Rather, the idea is to build a portfolio that includes a collection of funds that together generate great returns while providing you with a smooth ride through turbulent markets.

On that count, long-term bond funds fail. When stocks fall, sometimes it's because interest rates are rising.

But under that scenario, long-term bond funds also will start losing, and they will not provide much protection for stock investors, so they don't seem like a useful addition to a well-rounded portfolio of stocks and bonds.

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