Mutual Funds and ETFs

Mutual Funds and ETFs
Mutual Funds and ETFs — Everybody Into the Pool—of Money, That Is


Everybody Into the Pool—of Money, That Is

Have you ever chipped in to buy the boss a birthday present? A mutual fund works on the same principal. A mutual fund is a pool of money. It is thousands of investors chipping in to buy hundreds of securities.

Investors currently have about $11.8 trillion invested in mutual funds, making them a popular investment option.

A mutual fund buys multiple investments using money pooled from many investors. The fund is run by a professional fund manager (or team of managers) who use the money from investors to build the fund’s portfolio. The portfolio will follow a particular investment strategy such as long-term growth. Details regarding a fund’s investment strategy, fund manager, and more can be found in the mutual fund’s legal disclosure called a prospectus. Investors currently have about $11.8 trillion invested in over 7,500 mutual funds in the U.S., making mutual funds among the most popular investment options.1

As a fund investor, you own a piece of the fund’s total portfolio. You share in any growth (or loss) and any income paid by the fund’s investments. It’s a convenient way to diversify. Each mutual fund share represents an investment in anywhere from a few dozen to several hundred different securities.

In this section, we’ll introduce you to the asset classes that make up typical mutual funds. You will learn about different types of mutual funds, including stock, bond and money market funds, and the two ways mutual funds are managed—passively and actively. Included is information on exchange traded funds (ETFs) and how they differ from index mutual funds. You will be introduced to the “one choice” simplicity of asset allocation funds. Finally, you can get a sense of whether you’re comfortable picking your own funds to build a diversified retirement portfolio or whether you’d prefer to get the advice of a financial professional.

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Mutual funds offer you a way to invest in many different asset classes while getting diversification within each of these asset classes.

12011 Investment Company Fact Book