- A blue chip fund is a mutual fund that invests in large, well-established companies that usually pay dividends. According to figures provided by New York University, large company stocks have earned more than 11 percent per year since 1928. Investing in a blue chip fund will not guarantee you this type of return from year to year.
- Small company stocks, sometimes referred to as small caps, tend to be more volatile than large companies. As a result, small cap fund returns can experience wider price swings from one year to the next. Nevertheless, small cap stocks have historically outperformed large company stocks. According to a study performed by Duke University, small cap stocks have earned investors an average of more than 16 percent per year since 1925.
- While stock funds outperform bond funds and other types of investments, their performance can vary widely from year to year and sometimes even from one decade to the next. Bond funds, on the other hand, offer more stable returns for investors who need to ensure their money is safe for years. Since 1928, bonds have earned investors nearly 6 percent per year.
- A mutual fund can be actively managed by a professional investor or it can be designed to mirror an index, such as the S&P 500. All funds charge a fee for management and administrative costs. Fees are deducted directly against the fund's performance, so most investors do not even know they are paying them. Because index funds are not managed, they usually have significantly lower fees. According to the Motley Fool, index funds have historically outperformed managed funds by an average of 2 percent per year. This is likely because they have lower expenses.
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