Read about the pros and cons of mutual funds.

Mutual funds come with a few associated fees.

Mutual funds invest in multiple different companies with money from many investors, while an individual stock represents ownership in a single company and is bought by individual investors.

Investing in mutual funds can give you access to a wide range of securities, such as stocks and bonds, with just a single investment.

How mutual funds work

Mutual funds function similarly to other types of investments. If you want to invest, you go through a brokerage firm. However, they have a few key differentiators. Most are actively managed by a broker instead of passively earning you returns. Plus, they can carry some hefty fees.

Contrary to popular belief, random investments can outperform managed funds.

Mutual funds pool money to create larger investment opportunities with higher returns for anyone who initially invests in the fund.

Mutual fund investors typically must pay a variety of different types of taxes associated with their investment, unless the funds are within tax-advantaged accounts like a 401(k) or IRA.

Mutual funds are categorized as stock, bond, money market, and target-date funds.

Figure out what type of mutual fund is right for you with a tool that lets you compare different mutual funds, from rates to returns.

Mutual fund share classes are rankings of different types of services for investors.

ETFs and mutual funds both pool money into a basket of investments—but the key difference between them is that mutual funds trade just once per day after the market closes, while ETFs trade like stocks throughout the day at fluctuating prices.

90 percent of active managers of large public funds underperform

High fees tend to eat away at whatever edge professional managers accrue, resulting in most such funds performing worse than their underlying benchmark indexes like the S&P 500.

The pros of exchange-traded funds include ease of access through brokerage apps and retirement savings accounts

One unexpected perk is that ETFs are typically associated with lower capital gains tax requirements. Read this list to learn more about the benefits of investing in ETFs.

Mutual funds were first created and sold in the US in 1924.

Hedge funds make money from imposing steep fees on investors, as well as from investment performance

Hedge funds often operate on a "2 and 20" model: Investors pay fund managers a 2% management fee, and the hedge fund keeps 20% of their profits. (The 2% is imposed annually, irrespective of performance.) Hedge funds are known for chasing big returns—and taking big risks to get them. This explainer not only breaks down how they work in detail, but also the strategy first introduced in 1949 that still shapes hedge fund investing today.

Open-end and closed-end mutual funds differ in how they create and distribute shares.

The price of a mutual fund is based on its net asset value (or NAV).

Index funds are typically structured as either mutual funds or exchange-traded funds, but investors can manually recreate an index through 'direct indexing.'

Explore a list of the world's largest mutual funds.

Explore a step-by-step guide for getting started as a retail investor

Instead of purchasing individual stocks and bonds, new investors may want to start in funds that track an index—like the S&P 500—or that hold a group of themed stocks.

ETFs and mutual funds are both taxed on capital gains and on dividends.

People often invest in alternative investments to diversify their portfolios

Because alternatives often have little correlation with traditional investments like stocks and bonds, adding them to a traditional portfolio can reduce its overall risk exposure.

Having two retirement accounts has its pros and cons

Contributing to both an IRA and a 401(k) lets you increase your retirement savings by about 30% every year. However, you’ll also spend more time actively investing that money and pay more in fees.

Investing in bonds comes with a few risks

Think: changes in interest rates that impact the bond’s value, or a bond issuer completely defaulting on a loan. There are steps investors can take to lower their initial and future risk when investing in the bond market, such as checking a company's bond rating before investing.

The difference between stocks and bonds

While more people invest in stocks than bonds, experts say owning both can make for a healthier portfolio. Stocks are considered a riskier investment than bonds, but tend to have higher returns. While bonds might be the safer option, they won’t grow your wealth as quickly.

Retail investors are getting burned by long/short strategies

In the US, many retail investors lack the SEC-mandated status (a high enough net worth, income, and other factors) to directly invest in hedge funds. The regulator considers hedge funds too risky for the masses. Hedge fund-like strategies have emerged as a workaround, despite potential pitfalls.

Mutual funds in seven broad categories averaged a 13.1% annual return in 2023.

The 'Big Three' asset managers—Vanguard, State Street, and BlackRock—collectively manage more than $30T in assets and are the largest shareholders in roughly 88% of all the companies listed on the S&P 500.

Fees can eat away at your 401(k)

Every investment plan has an expense ratio—a percentage of the total assets that goes to the investment manager in the form of fees. Because 401(k) plans are so common, and many of their participants are not savvy investors, the relative expense ratio for them has often excessively increased.

Learn how to invest in index funds with this step-by-step guide.

Investors need a 'margin account' to short sell stock

Margin accounts are leveraged accounts through brokerage firms that allow investors to make trades without the full amount of capital on hand. Similar to a secured loan, margin accounts often require some form of collateral and typically have a cap on how much investors can borrow. However, trading with a margin account is much riskier than a traditional investment account. Fees and charged interest are due on margin accounts, regardless of trade performance, meaning it's possible for investors to lose more money than just their initial investment.

Not all alternative investments are easy to invest in

For instance, some alternative investments are only available to accredited investors or high-net-worth individuals. Others have relatively high fees compared to traditional investments.

Many hedge funds use short selling as an alternative investment strategy to offset risk

Hedge funds typically use a "long-short" investment strategy—where funds diversify by investing in a mix of long positions and short positions—to balance risk and maximize profits. Including short positions gives hedge funds some protection against downturns in the market, although the strategy can have uncapped losses for investors.

Some people roll their 401(k) into an IRA to have more control over their account

However, some argue that you could end up paying less money to invest in a 401(k) plan than you would to invest in an IRA. This article offers a list of pros and cons regarding rolling a 401(k) into an IRA.

Active investors try to 'beat' the stock market's performance

There are two primary types of investment strategies that professional investors use: active investing and passive investing. While active investors try to "beat" the stock market's performance, passive investors have a bit more faith in the system.

When compared to stocks and bonds, alternative investments are often less regulated

Alternative investments are also often less liquid than traditional investments; they carry unique risk, return, and tax considerations.

While annuities can guarantee an income for risk-averse investors, they may play it too safe for others

Whether or not an annuity is the right investment option depends on the buyer’s unique needs. People who plan to retire soon are more likely to opt for the lower-risk investment, but there may be opportunity costs for people seeking higher returns.

Vanguard Group founder Jack Bogle created the first index fund, the Vanguard 500, in 1976—but the fund didn't take off until the 1990s.

Explore a guide to 529 college savings plans

Investors put after-tax dollars into these education-earmarked accounts, and like a 401(k) or IRA, they invest them into stocks, bonds, or funds. When it comes time to withdraw, investors do not pay any taxes on distributions. However, the money must be used for approved expenses like college tuition, textbooks, and trade schools.

A bond ETF lets someone invest in multiple bonds through one single fund

There are risks, there are also major perks to buying a bond ETF, like the ability to purchase bonds on the stock market.

Test your ETF knowledge

A 10-question quiz from the SEC allows investors to test their basic knowledge about exchange-traded funds and their investing counterparts, mutual funds. Here’s a sample question: Is the past performance of a fund a good indicator of future results? (Hint, the answer is no).

Retail investors are not professionals—they invest their own money

For retail investors, the stakes may seem higher and more personal. Critics say that this dynamic means that retail investors are more susceptible to behavioral biases that could lead them to make poor decisions when it comes to buying and selling assets. For instance, fear of missing out could cause a retail investor to buy a stock that is popular but not a financially worthy investment.

Read about the situations where a high-yield savings account doesn't make sense

While financial experts often recommend high-yield savings accounts, one expert argues that prioritizing adding more money to one doesn't make sense for someone who has a lot of high-interest debt or isn't taking advantage of their company's 401(k) match.

Explore a guide to investing in alternatives

Investors often use alternative investments, from collectibles to real estate, as a way to diversify their portfolios in case of market volatility. Getting started investing in these alternatives differs depending on the investment.

There are three main ways to start investing in the bond market

Invest in the boind market through a brokerage, mutual fund or ETF, or the US government. Each has different steps and terms to follow, from starting rates to opening specific accounts. Some bonds are relatively easy to purchase, but the process differs depending on the type of bond you want.

Only half of American workers have retirement accounts, like 401(k) plans, through their current jobs.

In the early 2000s, Warren Buffett invested $1M in an index fund to show that passively managed investments would outperform hedge funds—making the point that actively managed funds are not worth the management fees they charge.

ETFs were first created as an alternative to mutual funds, combining the diversification benefits of a mutual fund with the ability to trade throughout the day on a stock exchange.

Shorting is a high-risk and expensive investment strategy that hedge funds specialize in

Most investors buy stocks with the expectation that those stocks will be worth more tomorrow than they are today. Short selling, known as “shorting,” a stock is the opposite: The investor is betting the stock will drop in value.

ETFs are rising in popularity

While less than half of retail investors hold ETFs in their portfolio, this figure is up dramatically in recent years, and experts forecast continued adoption as more options hit the market and total ETF assets under management continue to grow.