what is advantage and disadvatange of growth and diversification fund?

Question

what is advantage and disadvatange of growth and diversification fund? what is best growth and diversification funds last 5 years?

Answer 1

A growth fund invests in companies that the fund believes have high growth potential. But there are several varieties of growth funds--large growth funds, mid-cap growth funds, small-cap growth funds, and probably several other varieties besides.

The advantage is that these stocks have very high betas and when the market is rising they tend to rise more than the market in general.

The disadvantage is that these stocks tend to carry very high PEs and are subject to very high volitility. They can drop a lot at a moments notice. Another is that they tend to be concentrated in just a very few industries so the portfolios of the funds are not very well diversified.

Diversification fund

These funds might fall into several other categories so that they can not be so easily generalized as growth funds.

There are large cap diversified funds, global diversified funds, small cap diversified funds, value diversified funds, and several others that I do not recall right off the bat. So the real question becomes what type of diversification did you have in mind?

You can easily find some of the best over the last 5 years by going to Yahoo Finance and running their mutual fund screens.
I love to do that.

Here is what Yahoo finance returned for Large Cap growth funds for best over 5 years. Average annual return of the best is about 17%

http://screen.yahoo.com/a?cc=LG&nm=&proy=&mgrt=&rtmin=5&rtmax=&retrmin=&retrmax=&risrmin=&risrmax=&trytd=&troy=&trty=&trfy=165%2F&mii=&mfl=&er=&namin=&namax=&tomin=&tomax=&mmcmin=&mmcmax=&vw=1&db=funds

Here are the small cap growth. Average annual return for 5 years about 18%

http://screen.yahoo.com/a?cc=SG&nm=&proy=&mgrt=&rtmin=5&rtmax=&retrmin=&retrmax=&risrmin=&risrmax=&trytd=&troy=&trty=&trfy=165%2F&mii=&mfl=&er=&namin=&namax=&tomin=&tomax=&mmcmin=&mmcmax=&vw=1&db=funds

Mid cap growth annual 5 year return about 16%

http://screen.yahoo.com/a?cc=MG&nm=&proy=&mgrt=&rtmin=5&rtmax=&retrmin=&retrmax=&risrmin=&risrmax=&trytd=&troy=&trty=&trfy=165%2F&mii=&mfl=&er=&namin=&namax=&tomin=&tomax=&mmcmin=&mmcmax=&vw=1&db=funds

For diversified funds, here is a list of funds that invest in stocks throughout the world. Annual 5 year retun about 18%

http://screen.yahoo.com/a?cc=WS&nm=&proy=&mgrt=&rtmin=5&rtmax=&retrmin=&retrmax=&risrmin=&risrmax=&trytd=&troy=&trty=&trfy=165%2F&mii=&mfl=&er=&namin=&namax=&tomin=&tomax=&mmcmin=&mmcmax=&vw=1&db=funds


Large diversified returned only one hit. 16% return

http://screen.yahoo.com/a?cc=LB&nm=&proy=&mgrt=&rtmin=5&rtmax=&retrmin=&retrmax=&risrmin=&risrmax=&trytd=&troy=&trty=&trfy=165%2F&mii=&mfl=&er=&namin=&namax=&tomin=&tomax=&mmcmin=&mmcmax=&vw=1&db=funds

mid cap blend about 20% wow

http://screen.yahoo.com/a?cc=MB&nm=&proy=&mgrt=&rtmin=5&rtmax=&retrmin=&retrmax=&risrmin=&risrmax=&trytd=&troy=&trty=&trfy=165%2F&mii=&mfl=&er=&namin=&namax=&tomin=&tomax=&mmcmin=&mmcmax=&vw=1&db=funds

small cap blend about 18% not bad

http://screen.yahoo.com/a?cc=SB&nm=&proy=&mgrt=&rtmin=5&rtmax=&retrmin=&retrmax=&risrmin=&risrmax=&trytd=&troy=&trty=&trfy=165%2F&mii=&mfl=&er=&namin=&namax=&tomin=&tomax=&mmcmin=&mmcmax=&vw=1&db=funds

The funds with the best overall 5 year returns, according to Yahoo finance did not fall into any of those categories. They were more specialized funds.

Top fund: ING Russia Fund 50.1% annual over 5 years. Wouldn't have loved to have bought some of that 5 years ago??

Answer 2

1

Answer 3

A growth fund is a diversified portfolio of stocks that has capital appreciation as its primary goal, and thereby invests in companies that reinvest their earnings into expansion, acquisitions, and/or research and development.

Most growth funds offer higher potential growth but usually at a higher risk.

Mutual Fund Basics Tutorial
http://www.investopedia.com/university/mutualfunds/

Diversified Fund
A type of investment fund that contains a wide array of securities and is adequately diversified. A mutual fund classified as a "diversified fund" will actively maintain a high level of diversification in its holdings, thus reducing the amount of risk in the fund, since events that affect one sector won't have the same effect on other sectors. For example, the fund may restrict its purchases so it is not dominated by companies from one industry or representing one market capitalization size.

A diversified fund contrasts with specialized or focused funds, such as sector funds, which focus on stocks in specific sectors such as biotechnology, pharmaceuticals or utilities, or in particular regions such as Asia or Europe. If you want to be broadly diversified across the entire market, diversified funds are a good place to start looking.

Also here
Importance of Diversification
Dangers of Over-Diversification
http://www.investopedia.com/terms/d/diversifiedfund.asp

Diversified Common Stock Fund
A mutual fund that invests its assets in a wide range of common stocks. The fund's objectives can be growth, income, or a combination of both.

The name basically says it all. It's a fund that invests in a bunch of different stocks.

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Okay, that's the online version.

Some people think you can diversify away risk. Not true. You cannot do away with market risk or the economy risk, because the economy ties everything together. If you think we are going into recession, you should pull out of stocks altogether, unless you're a great stock picker and can swim upstream. No amount of diversification will make you money in a downtrend, unless you are short. And there are a few Hedge Funds that play the short side, but MF's aren't allowed to get out, let alone go short, so in a market downturn, they all get hit, no matter how diversified.

A growth fund will get hit even harder, because they take on more risk and invest in the more volatile stocks.

Or, you can say "Screw all this sheet," and just follow the Unified Theory

Unified Theory of Everything Financial
Revealed in Dilbert and the Way of the Weasels
By Scott Adams
1. Make a will
2. Pay off your credit cards
3. Get term life insurance if you have a family to support
4. Fund your 401k to the maximum
5. Fund your IRA to the maximum
6. Buy a house if you want to live in a house and can afford it
7. Put six months worth of expenses in a money-market account
8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement
9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio

Check the bottom line: A portfolio with an asset allocation of 70% in Vanguard's Total Stock Market Index (VTSMX) is doing just fine, performing remarkably close to the S&P 500 index. Moreover, that simple two-fund portfolio is perfect for the vast majority of America's 95 million investors who are passive much as Adam's Dilbert character.
The truth is, most investors have little or no interest in Wall Street's casino action; all the time-consuming research, the sophisticated stock-picking tricks, the costly trading necessary to play in a market drowning in 10,000 stocks, 18,000 funds and more than 100,000 bonds. Most investors have jobs and kids as their top priority. Moreover, Dilbert's simple two-fund portfolio compares favorably with our other lazy portfolios.

Answer 4

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Answer 5

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