Mutual funds

A mutual fund pools money from many investors and uses it to buy a portfolio of shares, bonds, or other assets. You own units representing a slice of the whole.

Why people use them

• Instant diversification: one purchase can spread across hundreds of holdings.
• Professional management: a manager or rules-based process runs the portfolio.
• Accessibility: you can start with small, regular amounts.

Active vs passive

• Active funds employ managers who try to beat the market by selecting investments. They charge more, and most fail to beat their benchmark over the long run.
• Passive (index) funds simply track a market index at very low cost. See ETFs and index funds.

Costs matter

Watch the expense ratio — even 1% a year compounds into a large drag over decades. See fees.

How they're priced

Most mutual funds price once a day at their net asset value (NAV). (ETFs, a close cousin, trade throughout the day.)

Key takeaway

Mutual funds are a simple, one-stop way to own a diversified, professionally run portfolio. For most people, low-cost index funds are the most reliable version of the idea.