Money Market Funds. The assets in these funds typically consist of U.S. Treasury bills, Certificates of Deposit (CDs) and other commercial investments. You’ll find them on the lowest rung of the risk ladder. On the other hand, they also offer the lowest potential for return and may not beat inflation. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the money market funds seek to preserve the value of the investment at $1.00 per share, it is possible to lose money by investing in a money market fund.

Bond mutual funds typically invest in government or corporate bonds, or a combination of both. Government bond mutual funds can invest in U.S. Government, state government, or local government bonds. Corporate bond mutual funds invest in a variety of bonds from companies across the country or around the world.

Bond mutual funds are subject to the performance of the bonds in their portfolio, and risk varies according to investment strategy. Generally, funds holding bonds with longer average- maturity periods have higher yield potential and higher risk. Bond mutual funds with a shorter average maturity are generally lower risk investments. Overall, bond mutual funds are low- to moderate-risk investments, with a few categorized on the high-risk side. Independent agencies such as Standard & Poor’s and Moody’s rate bonds in the marketplace according to risk.

Stock mutual funds are usually invested in various publicly traded stocks. A stock mutual fund’s value can rise or fall quickly over the short term. While past performance is not a guarantee of future results, historically stocks have performed better over the long term than other types of investments (e.g., government bonds, treasury securities). Stock prices fluctuate for a wide range of reasons, and stock mutual funds are subject to the same market risk as stocks. Not all stock mutual funds are the same or have the same level of risk. Most stock mutual funds fall into one or more of the following categories.