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Understanding funds that make high-risk investments

Think "investment" and you might not immediately think liquidity, or easy access to cash. Investors typically sock away money for the duration, not expecting to reap financial rewards until some distant point in the future, so an investment vehicle called a "high current income mutual fund" is likely to raise some eyebrowsand interest.

So what exactly is a high current income mutual fund? Bill Harris, CEO of Personal Capital, describes it as a mutual fund, or even an ETF, that invests in securities that can deliver "current income" (cash) every year.

Stacks of cash dollars
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"These funds typically hold bonds that have high interest and stocks that have high dividends, and this allows them to have the cash to distribute on an annual basis," he said.

These funds come in two flavors: high risk or low risk. "The ones with higher risk tend to invest more in stocks than in bonds, and often in stocks with higher volatility," said Harris.

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The advantage of having a high current income mutual fund in your portfolio, particularly for retirees, is that it delivers regular, reliable amounts of cash, he noted. The drawback is that returns are typically "moderate."

"It's worth doing your homework, understanding this type of security, and then talking to your financial advisor to find out if it's right for you," said Harris.

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