| A majority of people are now familiar with mutual | | | | kind of fund, the role of the fund manager is quite |
| funds. Mutual funds are managed collections of | | | | minimal. His or her actions are largely dictated by |
| investor money that are invested in various | | | | the mechanisms of the fund. |
| underlying equities. They have a fund manager, | | | | While an index fund may not sound like a |
| who is a professional hired to operate the fund. | | | | particularly exciting investment, data seem to |
| Mutual funds have become considerably more | | | | suggest that over time actively managed funds |
| popular over the years. The popularization of | | | | do not outperform the markets. While mutual |
| 401(k)s and other investment vehicles have | | | | funds often tout their 5 or 10 year returns, this |
| helped propel the mutual fund industry to over 12 | | | | can actually be a very small sample space. A fund |
| trillion dollars. Compare this to the 1960s with 48 | | | | manager may have a strategy that beats the |
| billion. Obviously there has been a dramatically | | | | market under certain conditions, but once those |
| growing interest in this area of investment. | | | | underlying conditions change their fund may very |
| Mutual funds can invest in pretty much any kind | | | | well underperform. |
| of security. Typically they invest in stocks, bonds | | | | All of this suggests that mutual fund managers |
| and cash instruments, but there is essentially | | | | are typically not worth the fees they are charging. |
| infinite variety. Their portfolios are adjusted | | | | If you can get similar or superior returns over |
| periodically by their fund manager, to maximize | | | | time by simply investing in an index fund, why |
| returns in his or her judgment. | | | | pay the management fee for an actively |
| One particular type of mutual fund is of particular | | | | managed fund. Moreover, why go through all the |
| interest. This is the index fund, which is intended | | | | trouble of researching and investigating the funds. |
| to simply mimic the returns of the market. In this | | | | |