Mutual Fund Vs. Index Fund: Knowing The Difference

Wall Street has an impressive track record for those willing to invest over long periods of time. The average stock market return for 10 years is 9.2%, according to Goldman Sachs data for the past 140 years. Of course, that is if investors choose to invest in funds that mimic the broader market’s returns. Individual stock investors may increase their returns, but not without inviting more risk. Therefore, investors who want to minimize risk while realizing returns close to the 10-year average should consider investing in funds, which begs the question: Which funds are best suited for today’s investors?

There are several types of funds investors may choose to invest in, but each offers something different. Some funds are better for investors with longer investing timelines, while others are better suited for those on the brink of retirement. The following is designed to help investors end the mutual fund vs. index fund debate and perhaps even help them choose where their money will realize the best returns for their particular situation.

What Is A Mutual Fund?

mutual fund is an investment vehicle that allows investors to pool their money together to invest in securities. However, it is worth noting that investing in a mutual fund is more of an investment in a particular money manager. If for nothing else, individual investors are not responsible for picking their securities the mutual fund will invest in. Instead, investors choose which mutual fund to invest in based on predetermined securities and benchmarks. Once investors determine which mutual fund will help them meet their needs, they put their money in the hands of the mutual fund’s money managers. Once the fund managers receive the investors’ money, they will split up the collectively pooled capital and divide it amongst a predetermined “basket” of stocks, bonds, money market instruments, and similar assets.

What Is An Index Fund?

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