Which Type of Mutual Fund Has the Highest Allocation Toward Stocks?

Written By Ben Broadwater

Updated November 8, 2023

Statistically, stocks have outperformed other asset classes in the long run. Therefore, many investors want to know which type of mutual fund has the highest allocation toward stocks. Despite what some consider higher risk, stocks are still a fantastic way to grow wealth and generate high returns.

which type of mutual fund has the highest allocation toward stocks

Which Type of Mutual Fund Has the Highest Allocation Toward Stocks?

Aggressive growth funds are the most aggressive type of stock mutual fund. They typically invest at least 80% of their assets in stocks, and they may also invest in other asset classes, such as bonds or money market instruments.

Aggressive growth funds are designed for investors who are willing to take on a high level of risk in exchange for the potential for high returns. These funds can be volatile, meaning that their prices can fluctuate rapidly. As a result, aggressive growth funds are not suitable for all investors.

These funds typically invest in small-cap stocks, which are the stocks of companies with a market capitalization of less than $2 billion. Aggressive growth funds also tend to invest in stocks that are in emerging markets or new industries.

Also, they are often actively managed, which means that the fund manager has discretion to buy and sell stocks as they see fit. This can lead to higher fees, but it also gives the manager the opportunity to try to outperform the market.

Aggressive growth funds should be a part of a diversified portfolio, but they should not be the only type of fund you own.

Other Funds That Invest in Stocks

Growth Funds

Growth funds invest in stocks that are expected to grow at a faster rate than the overall market. These funds typically have a lower allocation to stocks than aggressive growth funds, but they still have a significant amount of risk. Growth funds typically invest in large-cap stocks, which are the stocks of companies with a market capitalization of over $10 billion.

Value Funds

Value funds invest in stocks that are trading below their intrinsic value. These funds typically have a lower risk than growth funds, but they also have the potential for lower returns. Value funds typically invest in small-cap stocks, which are the stocks of companies with a market capitalization of less than $2 billion.

Index Funds

Index funds track a specific market index, such as the S&P 500. Index funds are a good way to invest in stocks without having to pick individual stocks. Index funds are typically less risky than actively managed funds, such as growth funds and value funds.

Sector Funds

Sector funds invest in a specific sector of the economy, such as technology, healthcare, or consumer discretionary. Sector funds can be a good way to get exposure to a particular industry, but they can also be more volatile than broader market funds.

International Funds

International funds invest in stocks of companies outside of the United States. International funds can be a good way to diversify your portfolio and reduce your risk. However, they can also be more volatile than domestic funds.

The best type of mutual fund for you will depend on your individual investment goals and risk tolerance. If you are young and have a long time horizon, you may be able to tolerate the risk of an aggressive growth fund. However, if you are nearing retirement or have a low tolerance for risk, you may want to choose a more conservative fund, such as a value fund or an index fund.

Here Are Some Additional Factors to Consider When Choosing a Mutual Fund That Invests in Stocks:

  • Fees: Mutual funds charge fees, such as an expense ratio, which can eat into your returns. Be sure to compare the fees of different funds before you invest.

  • Performance: Past performance is not a guarantee of future results, but it is still a good indicator of how a fund has performed in the past. Look at the fund's historical returns over a period of at least five years.

  • Investment style: Some funds have a specific investment style, such as growth or value. Choose a fund that has an investment style that matches your investment goals.

  • Portfolio composition: Look at the fund's portfolio composition to see what types of stocks it invests in. This will help you understand the risks and potential rewards of the fund.

  • Liquidity: Some funds are more liquid than others. Liquidity refers to how easy it is to buy and sell shares of the fund. Choose a fund that is liquid enough to meet your needs.

Which Type of Mutual Fund Has the Highest Allocation Toward Stocks? – Final Thoughts

If aggresive growth funds are too risky for you, do not worry. There are many other options to choose from. If you are not sure which type of mutual fund is right for you, you might consider speaking with a financial advisor. A financial advisor can help you assess your investment goals and risk tolerance and recommend a fund that is appropriate for you. However, not all financial advisors have your best interest in mind, and some may be more concerned with th or income than your well-being. 

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