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What are domestic stock funds?

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Domestic stock funds offer exposure to  the world’s largest, most liquid equity market, and can give investors the ability to own stocks in some of the world’s most successful companies. Because many of these U.S. stocks have historically delivered attractive risk-adjusted returns, domestic stock funds have traditionally been a core component of many portfolios with long-term time horizons.

When you buy shares in a domestic stock fund, the money you invest is pooled with money from other investors and is primarily used to buy stocks issued by U.S. companies. Most funds own hundreds of such stocks, something that would be impractical if you were buying individual stocks on your own.

However, while all domestic stock funds invest in U.S. companies, not all funds take the same approach. Some funds specialize in companies of specific sizes or market capitalizations, while others specialize in companies that invest according to a specific style, such as growth or value. Other funds may be more broadly diversified beyond a specific market cap or style, and may emphasize current income, capital appreciation, or some combination of the two. These funds generally hold stocks issued by a broad range of companies from different industries, different parts of the U.S., and different sectors of the economy.

Understanding these different approaches, as well as both the risks and potential rewards of domestic stocks, is the first step in helping you find the fund or funds that most closely match your investing needs.

Learn more about the difference between value and growth investing.

Advantages of domestic stock funds


Domestic stock funds typically own many individual stocks across different industries, which can reduce the chances that the performance of a single stock or a single industry can negatively impact the performance of the entire portfolio. Certain types of domestic stock funds, such as blended funds, are also diversified across different investing styles and different sized companies. Domestic stock funds can offer exposure to the world’s largest, most liquid equity market, which can give investors the ability to own shares in some of the world’s most successful companies.

Capital appreciation and income

If you’re looking to invest in the long-term health of the U.S. economy, domestic stock funds can offer significant appreciation potential. For those saving for retirement or other similar longer-term goals, this kind of potential growth can play an important role in helping your savings keep pace with inflation. In addition, many domestic stock funds invest in companies that pay regular dividends, which could help generate income.

Liquidity and convenience

All mutual funds allow you to buy or sell your fund shares at each day’s net asset value. You can also elect to have income from dividends and capital gains distributions automatically reinvested in a fund, which can potentially compound over time and help drive long-term returns, or make additional investments at any time. For most stock funds, the required minimum initial investment may be substantially less than what you would have to pay to build a diversified portfolio of individual stocks.

Risks of domestic stock funds

Loss of principal

The performance of each stock fund is determined by the performance of its stock holdings. When stocks go down in price, the value of your investment in the fund will go down in price as well. If you need to sell your fund when stock prices are low, you may lose money on your initial investment. In addition, although mutual funds are by definition diversified investments, diversification can’t guarantee a profit, nor can it protect you against a loss.

Potential tax consequences

When stock funds either receive dividends or sell stocks that have gone up in value, the money is distributed to shareholders of the fund in the form of a distribution. As a shareholder in the fund, you’re responsible for paying taxes on those distributions. In some cases where funds have held on to stocks for long periods of time, you may receive capital gains distributions, and thus be responsible for paying taxes, even in a year when a fund provides negative returns.

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Related Lessons

  • What are bond funds?

    For many investors, a bond fund is a more efficient way of investing in bonds than buying individual securities.

  • Types of mutual funds

    Understanding the risks involved with investing and your own tolerance for risk—as well as your desire to involve yourself in the management of your investments—is key to helping you choose the fund or funds that best meet your investing needs.

  • What are international & global stock funds?

    International stocks can be an important part of a diversified portfolio. Like all mutual funds, international and global stock funds can potentially invest in a large number of securities, giving you a cost-effective way to own shares in many different companies.

Mutual Funds at Fidelity

  • Mutual funds from Fidelity

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  • Research mutual funds

    Use our Mutual Fund Evaluator to search among thousands of funds available through Fidelity, filtering and sorting for a range of performance criteria and fund characteristics, including ratings from Morningstar and other independent experts.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information.  Read it carefully.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.)  Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Past performance is no guarantee of future results.

Stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.

Past performance and dividend rates are historical and do not guarantee future results.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

The Fund Evaluator is provided to help self-directed investors evaluate mutual funds based on their own needs and circumstances. The criteria entered is at the sole discretion of the user and any information obtained should not be considered an offer to buy or sell, a solicitation of an offer to buy, or a recommendation for any securities. You acknowledge that your requests for information are unsolicited and shall neither constitute, nor be considered as investment advice by Fidelity Brokerage Services, LLC., Fidelity Distributors Corporation, or their affiliates (collectively, "Fidelity").