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Once you have determined what your goals are and how much risk you are willing to take to pursue them, the next step is to choose the funds to fit your needs. The choice can be overwhelming at first. Mutual funds now number in the thousands and run the gamut from conservative money-market funds to aggressive stock funds.
That's why the advice your financial adviser can offer can be invaluable. Not only can they help you clarify your goals and assess risks, but they can also help you to make sensible investment choices.
The following chart provides you with an overview of the basic mutual fund types, and the reasons people invest in them, as well as how the MTB Group of Funds fits into these mutual fund categories. MTB also offers three Managed Allocation Funds – Conservative Growth, Moderate Growth and Aggressive Growth – which allow you to put money market, bond or stock funds to work for you in a specific asset allocation combination that can be suitable for your particular situation and goals.* We will outline the benefits of asset allocation later on in this Guide. First let's take a look at stock, bond and money market funds, what they are and how they can help you to pursue your goals.
* Due to their strategy of investing in other mutual funds, these funds may incur certain additional expenses and tax results that would not be present with a direct investment in the underlying funds.
Mutual funds are subject to risks and fluctuate in value.
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Click here to view the basic Mutual Fund Types chart
Today there seems to be a stock fund for every type of investor.Getting a general feel for the types of stock funds available, can help you to ensure that you are choosing the right fund for your investment goal. The following overview should help.
 
A stock is a share of ownership in a corporation. Companies issue stock as a means of raising business capital. Investors who buy stock become part owners of the issuing company.
Historically stocks have outperformed other investments such as money market instruments or bonds in providing growth over the long-term. As the chart below indicates investing in a stock fund can be a smart move for the long-term investor.
Many stock funds can be generally defined by the market value of the stocks that they invest in, and they will often use “large-cap,” “mid-cap,” or “small-cap” in their names to describe themselves.*
generally own stocks of large-cap companies. Companies in this category tend to be well-known businesses that typically enjoy solid sales and earnings growth. Investors who are looking for established companies may invest in these types of funds.
generally own stocks of mid-cap companies. Not quite household names, these businesses are growing and their stocks tend to be less volatile than that of small-cap funds, but more volatile than large-cap funds. Mid-cap funds are generally suitable for investors who want long-term growth and are willing to wait out any temporary downturns in the fund's fortunes.
generally own stocks issued by small-cap companies. These companies tend to be in the early stages of their growth and their stocks have the potential for significant price appreciation as well as significant price volatility. The loss of a major customer or a shift in the economy can cause these stocks to lose value quickly. This price volatility makes them suitable for investors who can handle a high degree of risk in exchange for the potential of higher returns.
* The industry definition of large-cap, mid-cap and small-cap stocks may vary. The dollar parameters used by widely recognized indices may also vary.
Historically, growth and value stocks have moved in and out of favor at different times. Fund managers analyze earnings and assets with respect to the stock's current price to determine whether a stock fits in the growth or the value category.
seek to invest in the stocks of companies with rapidly expanding earnings growth. These “growth” companies are characterized by sales growth greater than competitors, more debt incurred for expansion, above-average earnings increases, high earnings per share and high price/earnings and price to book ratios. There are many different types of growth funds, some more aggressive than others. The most aggressive growth fund managers will take on sizeable risk, while other more conservative growth fund managers may invest in shares of growing companies, but lean more towards large well-established names.
managers of value funds are bargain hunters. They typically buy the stocks of companies that have suffered temporary setbacks in sales or earnings, or are out of favor and whose book value suggests that they are not fairly valued by the market. These managers hope that such stocks will increase in value and price as the market changes, and that investors will recognize the true value of the stock. Value companies generally have low or no sales growth, little corporate debt, below-average earnings increases, low earnings per share and low price/earnings and price/book ratios.
, Equity Income Funds: these funds have a common goal, which is to provide long-term growth as well as income. They generally hold some combination of dividend-paying stocks or income-producing securities, such as bonds or convertible securities. They are generally for risk-averse investors and anyone seeking current income without forgoing the potential for capital growth.
own stocks in companies that have an international market. In general, a broadly diversified international fund that invests in numerous companies around the world may be appropriate for the investor who seeks diversification, can handle high volatility and wishes to benefit from the growth of successful non-U.S. companies. Some international funds may include multinational companies with a U.S. presence. The additional risks that come with investing abroad include changes in the exchange rate and political instability.
specialize in the stocks of specific industries or businesses, such as science and technology, healthcare, telecommunications, etc. As they are focused on a specific sector, they can be very volatile. Their lack of industry diversification means that only investors who can handle higher than average risk should consider investing in these funds.
It is important to have a general understanding of the investment objective and strategy of any stock fund that you are planning to invest in, so that you can ensure that it is suitable for you and your goals. It can also ensure that you are not investing in too many funds with the same investment objective. Diversification among types of stock funds can help to offset fluctuations in a specific market when managed in an effective manner.* For example, if small-cap stocks are lagging the market, an investment in large-cap stocks which may be performing more positively could provide some balance to your investments.
On the other hand, investing in a number of stock funds with similar investment objectives and stock selection strategies, can be counter productive to your investment portfolio. When overall fund expenses are considered, you may be paying more for more funds, without getting more when it comes to performance over time.
MTB Group of Funds gives you a number of opportunities to fine-tune your investment strategy and add a growth component to your investment portfolio by offering a variety of stock funds. Our stock fund line-up includes the:
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MTB Multi-Cap Growth Fund |
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MTB Small-Cap Growth Fund**
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MTB Large-Cap Growth Fund |
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MTB International Equity Fund*** |
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MTB Large-Cap Value Fund |
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MTB Mid-Cap Growth Fund |
Ask your financial adviser for details or visit our website at www.mtbfunds.com.
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* Diversification does not assure a profit nor protect against loss.
** Small company stocks are less liquid and subject to greater price volatility than large capitalization stocks.
*** International investing involves special risks including currency risk, increased volatility of foreign securities, political risk,and differences in auditing and other financial standards.
A bond is a type of security that functions like a loan from the investor to the issuer.
When an investor purchases a bond, they are lending money to the government or corporation that issues the bond. When a government or corporation wants to finance a new project such as building a new airport or factory, they will often raise the money for this project by selling bonds to the investing public. In exchange for this “loan,” the issuer typically promises to make periodic payments, or interest payments, to the investor over the life of the bond (generally every six months).
This is the “interest” or “yield” that the investor earns for lending money to the issuer. The issuer also promises to repay the amount loaned, i.e. the principal or face value of the bond, on a specific maturity date.
There are several reasons investors turn to bond funds to meet their investment objectives:
Regular Income Stream: bond funds typically pay monthly dividends to their shareholders, providing a stream of income for investors, or the capability of dividend reinvestment.
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 like all mutual funds, bond funds provide the shareholder with a diversified portfolio of holdings that most investors could not afford to duplicate on their own. A typical bond fund may own dozens or hundreds of bonds, providing the shareholder with a range of maturities, quality ratings, issuers and interest payments. All of these combine to provide the investor with an income stream. In addition, bond funds usually tend to be less volatile than stock funds and are often used by investors to provide a balanced asset allocation within their investment portfolio.
bond funds, as are all mutual funds, are managed by professionals trained to use research and market information to help investors pursue their financial goals. Their day to day examination of the bond market provides insight and expertise unavailable to most individual investors.
bond funds can be redeemed on a daily basis*, allowing investors access to their funds in times of need. In addition, bond funds permit the reinvestment of dividends, allowing an investor to channel returns back into their portfolio to maximize the benefits of compounding.
typically bond funds have low minimum investment requirements, making them a realistic investment option for many investors. By comparison, the purchase of individual bonds often requires large investments.
* Redemption is at the then-current net asset value, which may be more or less than the original cost.
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Getting a feel for the types of bond funds available can help you choose the right fund for your investment goal. As a general rule, the type of bonds in a fund will vary depending on the fund's objective. The following is an overview of the more common types of bond funds available today:
these funds invest primarily in bonds issued by the U.S. Treasury or Federal government agencies.As such, they offer the highest credit quality and a high degree of safety, which means you shouldn't have to worry much about credit risk, but their yields and total returns tend to be slightly lower than those of other bond funds. Even though they are considered to be the more conservative of bond funds, shares are not guaranteed by the U.S. Government and their share price will fluctuate, since the bonds in a fund are sensitive to changes in interest rates. Short-term government bond funds will be less volatile than longer term government bond funds.
 also known as muni bond funds, tax-free bond funds and tax-exempt bond funds, these funds invest in bonds issued by cities, states and other local government entities. As a result, they generate dividends that are free from Federal income taxes. The income from municipal bond funds that invest only in the issues of a single state, may also be exempt from state and local taxes for shareholders who reside in that state. Once you take into account the tax advantages, municipal bond funds often offer better yields than government and corporate bond funds. Investors in higher tax brackets often look to these funds to provide some relief from taxation.
these funds buy bonds issued by corporations. When researching corporate bond funds, consider the credit quality of the individual bonds they hold (most hold highly rated bonds, AAA to BBB, but some take more risk by adding small higher-yielding, lowerrated bonds or junk bonds).** Also consider the average maturity of the bonds, the longer the average maturity, the greater the volatility.
these funds seek a high level of current income by investing in corporate bonds that are rated below investment grade. They are sometimes referred to as junk bond funds and can invest in the bonds of small starter firms as well as in the bonds of large, well-known companies in weakened financial conditions. There is more risk and volatility with these funds in exchange for the potential of higher yields and you must understand and be comfortable with the risks involved before investing. * Income may be subject to the Federal alternative minimum tax and state and local taxes.
** Ratings pertain only to the securities in the portfolio and do not protect fund shares against market risk. |
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The MTB Funds give you a number of opportunities to fine-tune your investment strategy and add a fixed income component to your investment portfolio by offering a variety of bond funds. Our bond fund line-up includes the:
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MTB Short Duration Government Bond Fund |
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MTB New York Municipal Bond Fund* |
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MTB Short-Term Corporate Bond Fund |
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MTB Virginia Municipal Bond Fund* |
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MTB U.S. Government Bond Fund |
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MTB Pennsylvania Municipal Bond Fund* |
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MTB Income Fund |
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MTB Maryland Municipal Bond Fund* |
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MTB Intermediate-Term Bond Fund |
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Ask your financial adviser for details or visit our website at www.mtbfunds.com.
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*Income may be subect to Federal Alternative Minimum Tax
Just like stocks and stock funds, bonds and bond funds have risks that must be considered by the investor. Bond funds can be affected by several different risks:
it is important that bond and bond fund investors understand the seesaw relationship between bond prices and interest rates. Rising interest rates will reduce the market value of bonds held within a bond fund, as new securities with higher rates become available in the market. This effectively reduces the value of the fund. Falling interest rates have the opposite effect. As the rates on newly issued bonds drop, the value of existing higher-rate bonds in the fund's portfolio rises, and as a result, so does the price of fund shares.
How much a bond fund's share price fluctuates in response to interest rates, is also dictated by the overall length of maturity for the bonds held in a fund. As a general rule, the longer a bond's maturity, the more its price tends to fluctuate as interest rates change. Therefore, although longerterm funds tend to offer higher yields, they also have greater exposure to price fluctuations than intermediate-term and short-term bond funds. Investors need to balance their desire for income with the relative risks to principal in a bond fund.
this risk concerns the creditworthiness of the issuer and its expected ability to pay interest and repay its debt. If an issuer is unable to pay and it is in default on its bonds, a bond's price may drop. Any bond funds holding that bond could experience a drop in the share price.
Professional management within a fund can help reduce, but not eliminate, this risk.
this is the risk that the bond owner will receive principal back from the issuer prior to the bond's maturity date. This can happen when interest rates fall, giving the issuer the opportunity to borrow money at a lower interest rate than they are currently paying. When the issue prepays, the investor will not receive any more interest payments and they must look to the current market, where rates are lower, to reinvest. If a bond fund holds a bond that has been prepaid, the fund may have to reinvest in a bond with a lower yield.
Money market securities, also known as cash investments, are the most conservative investment choice, offering a low rate of return. They consist of very short-term debt obligations, with maturities of less than 13 months, issued by U.S. Government, municipalities, and corporations. They are most useful as a relatively secure, short-term parking place for cash – and not as a long-term investment for aggressive financial goals.
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Money Market Funds invest in a diversified portfolio of money market securities that have an average maturity of 90 days or less. They seek to maintain a stable $1 share price while earning a daily interest rate for the investor. Every $1 invested can normally be redeemed for $1, plus any interest earned. Money markets are used by investors for a number of reasons including:
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As a temporary parking place for cash reserves, such as money received from a tax refund |
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As an ongoing place to maintain cash for planned and unplanned expenses |
The MTB Group of Funds provides you with a number of money market options for your shortterm investment needs. Our money market fund line-up includes:
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MTB U.S. Treasury Money Market Fund |
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MTB Tax-Free Money Market Fund** |
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MTB Money Market Fund |
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MTB New York Tax-Free Money Market Fund** |
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MTB U.S. Government Money Market Fund |
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MTB Pennsylvania Tax-Free Money Market Fund** |
Ask your financial adviser for details or visit our website at www.mtbfunds.com.
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* An investment in money market funds is neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in these funds.
** Income may be subject to the Federal Alternative Minimum Tax
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Is your retirement far off in the future (20 years or more) or just around the corner (five years or fewer)? If your retirement is only a few years away, you may want to invest relatively conservatively. If, on the other hand, you are in your 20s, 30s or early 40s, you may be able to afford to invest more aggressively in preparing for your retirement.
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Do you have children? If so, are they planning to go to college? How many years do you have to prepare?
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Are there significant purchases in the near or intermediate-term that you need to save for?
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Would you be comfortable with an investment that will lose money from time to time, if it
offers the potential for higher long-term returns than a money market fund?
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Depending on how far your goals are in the future, do you have enough time to wait out the
market's inevitable ups and downs? |
One cardinal rule of investing is that risk and return usually go hand-in-hand.
When you make the decision to assume some risk, you create the opportunity for reward. But in the long run, there is more to risk than whether your investment goes up or down. To increase your wealth (or maintain your purchasing power), your investments must, at the very least, beat inflation. And your investment approach should enable you to meet the financial demands of your goals. For example, if you plan to retire at age 65, you should plan so that your retirement savings last at least another 17 years. So you need to assess your situation and investment approach very carefully. You may be taking on certain risks – namely, not having enough money to meet your financial goals or outpace inflation – by trying to avoid another.
That's why investors with long-term goals and risk tolerance invest in stock funds that seek to provide strong returns over the long-term. In the short-term the value of their investment may fluctuate due to market volatility, and investors must be prepared to ride out these fluctuations while keeping their long-term goals in mind. For example :
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If you are investing for your child's college education and will not need your investment for several years in the future, then investing in a stock fund may be an appropriate choice. |
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If you're in your 20s, 30s, or early 40s and your long-term goal is retirement, you may be able to afford to invest more of your retirement assets in investments with a relatively high risk/return potential such as stocks.
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As you get closer to retirement, you will probably want to take a more conservative approach and shift more of your assets into less-volatile investments, such as high-quality bonds.
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If you are a conservative investor but interested in stock funds, look for one that includes income among its main objectives; such funds tend to have more moderate price fluctuations than ones that de-emphasize income. Likewise, funds that invest across a wide variety of industries should be less volatile than funds that invest in a narrow sector, such as technology or energy. |
Talk with a financial adviser to determine the investments that are suitable for your particular situation.
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 Once you establish a foundation for your investment, you can help it grow by reinvesting any interest, dividends and capital gains your mutual funds pay you right back into the market. As the chart below shows, compounding can produce dramatic results over time. The sooner you begin investing, the more time you'll have to take advantage of the power of compounding. |
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To reach most financial goals, you may have to invest diligently for years, if not decades. Regular investing through a strategy called dollar cost averaging can help keep you on track. The principle is simple: invest the same amount of money each month or quarter, no matter what the market is doing. Through dollar cost averaging, you'll buy more shares when the market is declining and fewer shares when it's heading up.
In other words, your average price per share may be lower than the average market price per share over that period. Although systematic investing can be a very effective way to build your portfolio over time, you should be aware that it doesn't ensure a profit nor prevent loss in declining markets. You should also take a close look at your financial resources and assess whether you'll be able to contribute to your account on a regular basis.* Even if you invest only a small amount on a regular basis, you will still be working in a very disciplined way toward your goals.
* Because dollar cost averaging involves continuous investment regardless of fluctuating price levels, investors should consider their financial ability to continue purchases during periods of low price levels.
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Everyone's heard that old cliché, but nowhere is it more true than in investing. By diversifying and using asset allocation as a technique, you can help reduce the overall risk of your portfolio.*
Asset Allocation is a strategy by which you diversify your investment holdings among multiple asset classes such as stocks, bonds, and cash equivalents in order to reduce the effect of price fluctuations in your investment portfolio.
Different asset classes have different characteristics in terms of price volatility, risk level and expected return. They can also respond to economic and political situations in different ways; performing differently over time and in different market conditions.
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Typically stocks have the potential to provide the greatest gains, but also possess the risk of greatest loss. |
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Bonds are typically less risky, but their potential for gain is less than stocks. |
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Cash equivalents are the least risky, but offer less potential for return than stocks or bonds. |
If one of these asset classes is depreciating in value, another may be staying the same or even appreciating. For example, in a diversified portfolio, the poor performance of stocks may be cushioned by the stronger performance of bonds. In this way, asset allocation can help to even out the ups and downs in an investment portfolio and position a portfolio to better withstand market volatility.
Further diversification within asset classes can also help to lessen the impact of short-term volatility.
You may be able to lower your exposure to the risk in one asset class such as stocks, by diversifying within that asset class itself: investing in a variety of securities such as large-cap stocks, small-cap stocks and international stocks to offset fluctuations in a specific market. For example, if small-cap stocks are lagging the market, an investment in large-cap stocks, which may be performing more positively, could provide some balance to your portfolio.
We hope you've found this information about mutual funds useful in getting started on the road to investing. The first step may be the hardest, but we believe that years from now it's one you'll be glad you took. Be sure to review your investment plan on a regular basis as your financial situation changes and your investments grow at different rates. Make any necessary adjustments to your portfolio to bring it in line with your plan. Your financial adviser can help.
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