Bond funds are less risky

Bond funds are less risky than stock funds, but also less
rewarding. You can choose from the following types of bond
funds:

 Corporate
 Municipal
 U.S. Treasury bonds
Chapter 3: Understanding Mutual Funds, 401(k)s, and IRAs 39
 International bond funds
 Mortgage bond funds

Balanced funds are another investment option. These funds
are a mix of stocks and bonds that are also called blended or
hybrid funds. Generally, managers invest in about 60% stocks
and 40% bonds. Balanced funds are appealing to investors
because even in bear markets, their bond holdings still allow
them to pay dividends. (A bear market is generally defined as
a market in which stock prices drop 20% or more from their
previous high.)

Money market funds are arguably the least volatile type of
mutual fund. Fund managers invest in things such as shortterm
bank CDs, U.S. Treasury bills, and short-term corporate
debt issued by established and stable companies. This
type of mutual fund is ideal for people who may need to use
the money to buy something in the short term like a down
payment on a home. These funds are also a convenient place
to pool money for future investment decisions.