Index Funds vs. Mutual Funds Which is Better | Where to Put Your Money [2020]

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Index Funds vs. Mutual Funds Which is Better? There is a lot of content here on YouTube about both Mutual Funds and Index Funds, but there are still a lot of unanswered questions such as:

- What is an Index Fund?
- What is a Mutual Fund?
- What is the difference between an Index Fund and a Mutual Fund?
- What is the difference between an actively managed fund and a passively managed fund?
- What are the differences in fees that are charged?

WHAT IS A MUTUAL FUND?
A mutual fund is a collection or basket of many different investments where many different investors investor together, mutually. The assets are purchased and owned by the mutual fund and the investors own shares of the mutual fund./ This immediately gives diversification to the individual investor. Mutual Funds exist because their strategy is to BEAT their investment benchmark or S&P 500 Index.

WHAT IS AN INDEX FUND?
An index fund is a type of mutual fund that differs based on the investment strategy. An index fund's goal is to MATCH the stock market, not beat the market. It does this by investing the entire investments for the fund into the assets held in the index.

WHAT IS PASSIVE FUND MANAGEMENT?
Passive Fund Management is commonly associated with Index Funds because it is a largely hands off approach. With an Index Fund, the goal is to MATCH the stock market so the index fund just efficiently invests in the companies that make up the index they want to match. This results in lower expenses, lower transaction costs and lower capital gains expenses.

WHAT IS ACTIVE FUND MANAGEMENT?
Active Fund Management is commonly tied to mutual funds because it involves using a portfolio manager whose job is to make all of the investment decisions with the goal of BEATING the stock market. The portfolio manager will do what he needs to, even making same-day adjustments to the investment portfolio, to earn as much money as possible. This results in higher transaction costs for the mutual fund as well as higher capital gains expenses because the mutual fund is "realizing" more profits quicker than normal.

WHAT ARE THE DIFFERENCES IN FEES?
Actively managed mutual funds will ALWAYS have higher expense ratios based on the above information RE: active management, but the difference can be staggering. From TheBalance.com, we can see that the average actively manage large cap had an expense ratio of 0.865%, the average mid-cap was 1.02% and the average small-cap was 1.14% whereas the majority of index funds, especially from companies like Vanguard and Fidelity, sport index fund expense ratios between 0.00% and 0.10% consistently across many different index funds in their lineup.

Видео Index Funds vs. Mutual Funds Which is Better | Where to Put Your Money [2020] канала The Average Joe Investor