To sort through the many funds available in the United States today, you'll want to go beyond the disclosure documents supplied by any single mutual fund. If you'd like to follow the lead of experienced investors, you'll follow a two-step process. First, you'll specify your investment objectives so that you can divide your investment dollars among four broad categories of funds in a process called asset allocation. Second, you'll choose specific funds within each of the four categories, by using third-party sources of information to compare the merits of these funds.
In making your first decision about asset allocation, you'll use categories based on the main types of securities the funds hold. While we provide a detailed review of the many types of funds in each group later in this chapter, the four main categories are in brief: