“Investing involves committing money in order to earn a financial return: meaning that one invests money to make money and achieve your financial goals” — Paul Ebeling
There are lots of new terms added each year by experts and gurus holding new acronyms and titles to baffle the general public NutZ. But the basics are still the basics.
Here they are, as follows:
A stock, mutual fund, or ETF (exchange traded fund) is a type of asset, not indicative of a particular investment and its return.
So, we will start with the original and underlying ingredient for the rest of this discussion. A stock is a share of ownership in a company that can be purchased by an investor. Here the focus is on publicly traded stocks. Owning a stock usually does not come with an ongoing fee or management expense. The investor is vested in the ups and downs of its company. There are currently about 6,000 investable stocks in America to choose from.
A mutual fund is a professionally managed pool of money collected from many investors and invested across diversified holdings. These holdings can include, stocks, bonds, and cash, and together make up the fund’s portfolio. The 2 Key benefits touted by the industry are allowing modest investors broad diversification and professional management. Unlike stocks, mutual funds contain fees in the form of loads and management expenses. Some experts argue these fees are warranted in higher performance in good yrs and less in bad yrs. The oldest mutual fund still in existence is the Vanguard Wellington Fund, which debuted in Y 1929. Nowadays, there are roughly 8,000 available mutual funds in the United States.
Exchanged traded funds were created in the 1990’s and have been the hot ticket recently. They are similar to mutual funds as far as being a diversified pool of investors’ money, but they trade throughout the day like stocks, as opposed to mutual funds that are bought and sold based on their price at day’s end. Most ETF’s are passively managed and track an index, and have lower expenses than mutual funds. The trend towards ETF’s looks like it is here to stay, as evidenced by last yr’s inflow/outflow difference. Through September 2020, outflows from mutual funds totaled $317-B over the yr, whereas inflows into ETF’s were $313 during the same frame.
These 3 terms are basic essentials of the investing world, and are not to be confused with the financial jargon found on the internet or heard on 24/7 business channels.
Investors should that 1 asset type does not provide a surefire better return than an other. An expensive mutual fund made up of tech stocks likely did better last yr than a cost-efficient ETF made up of Oil stocks.
All 3 of these basis assets are held in investors accounts.
Have a healthy day, Keep the Faith!