Mutual Fund ETFs & Bonds
We will learn information and insights on mutual fund ETFs, and bonds, including their key points, benefits, and examples. The following topics are briefly introduced without going into detail, as the focus of this course is on stock investment.
Mutual Funds
Mutual funds are a basket of multiple securities professionally managed by fund managers at a fee. When you buy a mutual fund, you are pooling your money with a number of other investors.
If a person wants to invest & diversify in multiple securities like stocks, bonds, and gold but does not have the expertise, time, and a large amount of funds, he can buy a mutual fund. Mutual funds charge fees for management, administration, and other expenses. These fees are typically expressed as a percentage(expense ratio) of the fund’s assets under management.
Key Points:
- Investors pool money to invest together
- Mutual funds are managed by professionals
- An investor can start his investment journey at as low as $100 monthly.
- The returns of mutual funds are low – moderate.
- Mutual funds are designed with a particular strategy in mind, and their focus can range from large stocks, small stocks, government or corporate bonds ETC.
Example
Mostly, all the retirement money is invested in mutual funds. Whenever you ask your bank (financial advisors) to invest money, they typically invest in mutual funds. Mutual funds are provided by different companies like Vanguard, Fidelity, and banks.
Exchange-Traded Funds
An ETF, or exchange-traded fund, is a collection of stocks, bonds, and other securities, but it is traded on an exchange like a stock.
ETFs are similar to mutual funds in the way they provide investors with a diversified portfolio, but they are typically passively managed and have lower fees than actively managed mutual funds. ETFs allow investors to buy and sell just like a stock.
Example
The SPDR S&P 500 (SPY): It’s one of the oldest ETFs and tracks the S&P 500 Index. It means when you invest in this ETF, you will invest in all the stocks in S&P 500. This ETF is passively managed as it constantly invests in the S&P 500 stocks automatically.
Key Takeaways
ETF is
- Pool of investment
- Traded on the stock market
- Passively managed
- At low fee
- Less risky as the investment is diversified
Difference Between ETF and Mutual Fund
- Trading: ETFs trade like stocks on an exchange. Mutual funds are bought and sold at the end of the trading day at their net asset value (NAV).
- Fees: ETFs tend to have lower expenses than mutual funds.
- Managed Strategy: Most ETFs are passively managed, but Mutual Funds are actively managed by professionals.
- Returns: Statistically, ETF returns outperform mutual funds due to lower fees and no human emotion involved.
Note: Mutual funds and ETFs are complex topics, and there is much to learn about them. We will cover all the details in a dedicated course on “Mutual Funds” that can help you understand the nuances of these investment vehicles.
Bonds
Bonds are a type of debt security issued by companies or governments as a means of raising capital.
In short, a bond is loan made by an investor to the issuer.
When an investor buys a bond, they lend money to the issuer in return for a predetermined interest and time frame. Bonds are more lucrative when the interest rate is very low because investors loan money to organizations rather than putting in fixed-income assets.
Key takeaways
- Bonds are a way for an organization to raise money
- Bonds provide a predictable stream of income through interest payments.
- Bonds are considered lower-risk investments.
We will learn information and insights on mutual fund ETFs, and bonds, including their key points, benefits, and examples. The following topics are briefly introduced without going into detail, as the focus of this course is on stock investment.
Mutual Funds
Mutual funds are a basket of multiple securities professionally managed by fund managers at a fee. When you buy a mutual fund, you are pooling your money with a number of other investors.
If a person wants to invest & diversify in multiple securities like stocks, bonds, and gold but does not have the expertise, time, and a large amount of funds, he can buy a mutual fund. Mutual funds charge fees for management, administration, and other expenses. These fees are typically expressed as a percentage(expense ratio) of the fund’s assets under management.
Key Points:
- Investors pool money to invest together
- Mutual funds are managed by professionals
- An investor can start his investment journey at as low as $100 monthly.
- The returns of mutual funds are low – moderate.
- Mutual funds are designed with a particular strategy in mind, and their focus can range from large stocks, small stocks, government or corporate bonds ETC.
Example
Mostly, all the retirement money is invested in mutual funds. Whenever you ask your bank (financial advisors) to invest money, they typically invest in mutual funds. Mutual funds are provided by different companies like Vanguard, Fidelity, and banks.
Exchange-Traded Funds
An ETF, or exchange-traded fund, is a collection of stocks, bonds, and other securities, but it is traded on an exchange like a stock.
ETFs are similar to mutual funds in the way they provide investors with a diversified portfolio, but they are typically passively managed and have lower fees than actively managed mutual funds. ETFs allow investors to buy and sell just like a stock.
Example
The SPDR S&P 500 (SPY): It’s one of the oldest ETFs and tracks the S&P 500 Index. It means when you invest in this ETF, you will invest in all the stocks in S&P 500. This ETF is passively managed as it constantly invests in the S&P 500 stocks automatically.
Key Takeaways
ETF is
- Pool of investment
- Traded on the stock market
- Passively managed
- At low fee
- Less risky as the investment is diversified
Difference Between ETF and Mutual Fund
- Trading: ETFs trade like stocks on an exchange. Mutual funds are bought and sold at the end of the trading day at their net asset value (NAV).
- Fees: ETFs tend to have lower expenses than mutual funds.
- Managed Strategy: Most ETFs are passively managed, but Mutual Funds are actively managed by professionals.
- Returns: Statistically, ETF returns outperform mutual funds due to lower fees and no human emotion involved.
Note: Mutual funds and ETFs are complex topics, and there is much to learn about them. We will cover all the details in a dedicated course on “Mutual Funds” that can help you understand the nuances of these investment vehicles.
Bonds
Bonds are a type of debt security issued by companies or governments as a means of raising capital.
In short, a bond is loan made by an investor to the issuer.
When an investor buys a bond, they lend money to the issuer in return for a predetermined interest and time frame. Bonds are more lucrative when the interest rate is very low because investors loan money to organizations rather than putting in fixed-income assets.
Key takeaways
- Bonds are a way for an organization to raise money
- Bonds provide a predictable stream of income through interest payments.
- Bonds are considered lower-risk investments.