Expand Your Investment Portfolio With Different Mutual Funds

Types of Mutual Funds

Mutual funds that pay dividends are key for producing earnings for your portfolio, and smoothing out your returns. There are many different ways to achieve an income-producing strategy from investments. This can be accomplished through sector investments or general mutual funds that invest in income-yielding financial instruments. Either way, it helps to approach this type of strategy with a coherent set of underlying principles to follow when investing. Here are some types of mutual funds to consider investing in.

Bond Funds

Some of the higher paying mutual funds focus on fixed income investments. Depending on the type of security that these funds purchase, the dividend payouts could be high. For example, there are mutual funds that invest in high-yield securities, otherwise known as junk bonds. Do not let the name scare you. While these fixed income investments are lower rated than other bonds, they are almost as safe as regular bonds, and offer a much higher yield for the additional risk that is taken.

These are generally good investments to make when interest rates are low because they yield more than the standard fixed-income investments. Even if the bonds that the fund invests in are investment grades, the mutual fund will still likely have a steady yield. While this income stream may be less than what an equity fund can pay, the fund will also not decline as much in down markets.

Alternative Energy Mutual Funds

There is a new generation of mutual funds that generate returns through investments in alternative energy. While these securities typically do not pay dividends, there is the potential for a high amount of income as the alternative energy companies gain widespread acceptance in the economy. For the long-term, alternative energy companies appear to have a sound investment thesis as the groundswell against climate change gathers steam.

Alternative energy mutual funds can help investors play the overall sector without taking on a concentrated risk on one particular company. This will help protect your portfolio since the shape of the green energy revolution has yet to be determined. Still, it always helps to have at least a small part of an investment portfolio concentrated in up-and-coming technologies because it has the potential for high income.

Ethical Mutual Funds

Many investors are putting their proverbial money where their mouth is, and are refusing to invest in companies that they believe engage in corporate misbehavior. The problem is that, when investing in a mutual fund, investors do not always know which companies they end up owning. This problem is solved by purchasing shares of ethical mutual funds. The guiding investment principles of the fund restrict investment to companies that follow a certain set of rules. This allows investors to earn income at the same time as they advance whatever ethical agenda they follow.

Core Dividend Strategies

When investors find mutual funds that pay dividends, it helps reduce some of the risk of owning the fund. For example, if the mutual fund pays dividends to investors based on the dividends that it received from portfolio stocks, it can help protect some of the downside risk that comes from investing in the equities market. In other words, the dividends provide investors with protection in case the mutual fund depreciates in price by giving investors some income to offset any potential price declines. Equity mutual funds that pay high dividends will usually invest in established companies, which will reduce some of the volatility that comes with owning stocks.