When it comes to taking risks for fun, you might think about skydiving or bungee jumping, but not equity mutual funds.  When it comes to taking risks with your money, however, you might think about stuffing it in your mattress or burying it in the backyard.  Even if you are definitely not one to risk losing your money, you still might want to take a look at equity mutual funds as an alternative to pure stocks.  Equity funds invest mostly in stocks, usually lots of them from many different companies.  Because they hold stocks from different companies, equity funds are not supposed to fluctuate as much if the stock market has big moves up or down.

Before you’re ready to go headfirst into equity funds, you need to consider some points.  First and foremost, just because an investment is designed to be less risky, that does not mean that you will not lose money.  Buyers beware of any salesperson who claims to guarantee unconditional returns on investments.  Next, equity funds can be very different from one another.  For example, some stocks in a fund can be from a computer company and others could be from a car company.  Given the recent slowdown in the auto industry, you might want to know which car company’s stocks are in the fund and how many.  Another fund (even from the same mutual fund company) might have stocks primarily from small companies without much of a track record for success.  In this case, you’ll want to be prepared to keep the fund for awhile (three to five years) to give the companies a chance to prove themselves.  Price per share can vary a great deal as well.  Shares of the fund with small companies are going to be lower than a fund made of Fortune 500 companies because the demand is lower for the smaller companies’ stock.  As for holding on to them, equity funds are designed to move generally with the stock market (without the wild swings).  That said, the longer stocks are held, the more money they usually make over time.  The same holds true for equity mutual funds.  It’s not a good idea to buy into equity funds if you don’t like big changes in the market over several weeks or even several months.

Of course, equity funds offer different levels of risk, and therefore return potential, depending on what you are looking for.  If retirement is just around the corner, an equity fund might not be for you.  If you plan to work for fifteen or more years, however, an equity fund could be one way for you to add to your retirement savings.  Also, an equity fund is not intended for someone to get rich quick.  If you had a computer stock in your fund that quadrupled in price, you may even lose money depending on what else the fund invests in.  The computer stock by itself could make you pretty rich pretty quickly, though.  If stocks are what you want, however, your financial risk taking is more like bungee jumping.  Most people don’t want to take that plunge, so they will stick to equity mutual funds.