Chapter 10

Investing in Funds: Mutual Funds and Exchange-Traded Funds


Matching funds to meet your objectives

Creating and managing a fund portfolio

Exploring alternatives to funds

This chapter is all about investing through funds — mutual funds and exchange-traded funds (ETFs). Mutual funds are simply pools of money from investors that a mutual fund manager uses to buy a bunch of stocks, bonds, and other assets that meet the fund’s investment criteria. The best ETFs are quite similar to mutual funds — specifically, index mutual funds. Each ETF generally tracks a major market index. (Some ETFs, however, track narrowly focused indexes, such as an industry group or small country.) The most significant difference between a mutual fund and an ETF is that to invest in an EFT, you must buy it through a stock exchange where the ETFs trade, just as individual stocks trade.

Different types of funds can help you meet various financial goals. You can use money market funds for something most everybody needs: an emergency savings stash of three to six months’ living expenses. Or perhaps you’re thinking about saving for a home purchase, retirement, or future educational costs. If so, you can consider some stock and bond funds.

Because efficient funds take most of the hassle and cost out of deciding which companies to invest in, they’re among the finest investment vehicles available today. Also, funds enable you to have some of the best money managers in the country direct the ...

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