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Conservative Mutual Fund Policies

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Conservative Mutual Fund Policies

In order to stay on track and conserve principal, conservative mutual funds tend to stick with conservative investment strategies. They avoid market volatility, companies in poor financial health, and risky trading practices.

Things To Know

  • Conservative funds seek low-volatility bonds, such as US Treasury bonds, and stocks from established companies, such as blue chips.

Low volatility is a priority

Conservative funds tend to invest in securities with low volatility. Volatility is the amount that prices will fluctuate over time. When a bond or stock has high volatility, its price swings are greater. A conservative mutual fund avoids large swings to minimize the chance that its value will decline greatly in a given time. Therefore, conservative funds seek low-volatility bonds, such as US Treasury bonds, and stocks from established companies, such as blue chips.

Health is also a priority

In order to make sure their assets are safe, conservative funds may also seek out stocks and bonds of companies in good financial health. They prefer secured bonds, which are secured by collateral. They opt for stocks of larger, stronger companies and tend toward blue chips with a track record of consistent dividends.

Risk level is a priority, too

Conservative funds also avoid riskier trading practices. For example, they avoid frequent trading in an attempt to predict the changing direction of security prices. Conservative funds also avoid buying and selling options.

These investment strategies must be the funds’ fundamental policy, which cannot be changed except by shareholder approval. By adhering to this policy, conservative mutual funds remain conservative.