A mutual fund is defined as an investment tool that pools the money of many shareholders and invests it in a diversified portfolio of securities, such as stocks, bonds, and money market assets.
Mutual Fund Explained
A fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities, or money market securities. These funds offer investors the advantages of diversification and professional management. To participate, the investor may pay fees and expenses. Mutual funds are not covered by FDIC insurance.
A type of mutual fund whose investment objective typically is to achieve approximately the same return as a particular market index, such as the Standard & Poor’s 500 Index, the Russell 2000 Index, or the Wilshire 5000 Total Market Index.
Exchange Traded Fund (ETF)
An exchange-traded fund or ETF is a type of investment product that must register with the SEC as either an open-end investment company (generally known as “funds”) or a unit investment trust.
ETFs offer investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets and, in return, to receive an interest in that investment pool. ETF shares are traded on a national stock exchange.
Target Date Funds
A target-date fund is offered through employer-sponsored plans such as 401(k)s. It’s a diversified mutual fund that automatically shifts towards a more conservative mix of investments as it approaches a particular year in the future, known as its “target date.”
A target-date fund investor picks a fund with the right target date based on his or her particular investment goal. The managers of the fund then make all decisions about asset allocation, diversification, and rebalancing. Target date funds also are known as lifecycle funds.