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What Are Domestic Stock Funds?
by Ben Bontekoe
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Overview
Domestic stock funds are investment vehicles that invest in stocks of U.S.-based companies. These funds offer investors the potential for large gains while minimizing the potential risks. Domestic stock funds can be an important part of a balanced investment portfolio if they are consistent with investment objectives.
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The Facts
Domestic stock funds, like other mutual funds, pool investors' money into a fund, which is used to purchase securities---in this case, stock in U.S.-based companies. The fund manager controls the investments according to the fund's objectives, as stated in the prospectus. Each investor shares in any gains or losses of the fund, according to the number of shares he owns. Dividends and interest are also shared proportionally by the shareholders.
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Function
Domestic stock funds are useful for building a diversified portfolio. Because the fund usually owns many different assets, you are able to own stock in several different companies at once, which is less risky than owning a single company's stock.
These funds also eliminate the need to research individual companies within a specific industry or sector. If the investment objectives of the fund are consistent with your goals, domestic stock funds provide instant diversification by offering ownership of several companies within the industry.
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Features
There are domestic stock funds for almost any interest or investment objective. There are funds that invest in large, medium and small companies, as well as in combinations of all three. Funds are designed for growth, income or both. You can also invest in funds specializing in a particular sector, such as energy, gold or technology. Index funds try to match the performance of a particular stock market index, such as the S&P 500 or the entire U.S. stock market.
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Types
While domestic stock funds can be one element of an investment portfolio, a balanced portfolio will include investments in other areas as well. Funds are available for almost any investment objective. Examples include funds specializing in international markets or bonds, such as corporate, federal, state or municipal. You should consider long- and short-term investment objectives in developing a balanced portfolio.
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Considerations
The performance of domestic stock funds is not guaranteed. Funds can gain or lose value and are not insured by the FDIC. Although managers try to adhere to the fund's objectives, performance of the fund is dependent on the performance of the underlying stocks.
Costs vary among funds as well as among brokers. Be sure you thoroughly understand any sales charges and fees associated with the fund, as these can affect returns. Consult a tax adviser to determine the implications of investing in a particular fund.
