3) FUNDS 🤑
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Funds are a supply of capital belonging to numerous investors, collectively used to purchase securities and investments, like stocks or bonds. Funds are professionally managed by a manager, who oversees and decides which securities and investments the fund should hold
Funds can be investments in stocks and bonds in many different industries, like index funds, or in specific industries, like mutual funds for technological or biomedical companies.
History of Funds
Funds were created in the late 18th and early 19th century in Europe, with the earliest appearance dating to the Netherlands in 1774. The modern fund, where resources are pooled together for investment, originated in the United States in 1924, with the MFS Massachusetts Investors' Trust, spawning MFS Investment Management. Funds slowly expanded through the decades, with hundreds of funds created through the 50s and 60s, with funds reaching a peak in the 80s and 90s.
Types of Funds
Mutual/Open-Ended Fund: The most common type of fund
Investors add money onto a pile of funds, used for various investments, and money is removed when investors redeem their money, withdrawing participation in the fund
Exchange-Traded Funds (ETFs)
Funds where investors can buy at any time of the day, like stocks, that are mostly passively-managed
Differences between Mutual Funds and ETFs
Mutual Funds can only be bought once a day, at the end of the trading day, while ETFs can be bought at almost any time
Mutual Funds are actively managed and controlled, with more potential earnings and better management compared to passively-managed ETFs
Mutual Funds often have higher barriers to entry compared to ETFs
Most Mutual Funds require $3000, or about 30-50 shares, of investment, while ETFs require as little as one share only
Index Funds
Index Funds are like Mutual Funds but larger
In Index Funds, the fund invests stocks in a certain index, which is a collection of different companies, securities, and moreÂ
S&P 500, which is an index that tracks the largest 500 companies listed on the American Stock Exchange. The S&P 500 Index Fund would have investments and stakes in ever single of the 500 companies, no matter the industry
Index Funds are passively managed, with no active managers deciding which companies to invest in
Hedge Funds
Hedge Funds are like Mutual Funds, but for accredited investors, or essentially for people who are richer and more powerful in society
Hedge Funds are known for having less regulations, allowing them to take up unorthodox and, sometimes, downright illegal financial strategies in order to generate profit
Hedge Funds tend to invest in riskier assets and investments with higher profit potential
References
James Chen, "What Is an Investment Fund? Types of Funds and History", Investopedia, modified June 2023. https://www.investopedia.com/terms/i/investment-fund.asp
James McWhinney, "A Brief History of the Mutual Fund", Investopedia, last modified January 2022. https://www.investopedia.com/articles/mutualfund/05/mfhistory.asp
Cathy Pareto, "Mutual Fund vs. ETF: What's the Difference?", Investopedia, last modified May 2023. https://www.investopedia.com/articles/exchangetradedfunds/08/etf-mutual-fund-difference.asp
Vanguard, "ETFs vs. mutual funds: A comparison", last accessed August 2023. https://investor.vanguard.com/investor-resources-education/etfs/etf-vs-mutual-fund#:~:text=With%20a%20mutual%20fund%2C%20you,can%20only%20trade%20full%20shares.
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