Index Funds and Mutual Funds Essay

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Personal finance and investing is just that: it's personal. From the day the first shares are bought, for the individual who surmises it's undertaking, the decisions made today will have everlasting impacts on not only the distant future of the investor but the investor's family for generations to come. Combine this with current uncertainty in the stock markets, housing markets and economy and you have effectively driven a wedge between the investor, his income and his family at large. Statistics abound in reference to how poorly managed the majority of American's finances are and it's no wonder with the abundance of securities that are available in today's markets. Mutual funds and index funds have been triumphed as the "go to"…show more content…
By distinction of their very definitions a mutual fund is described as a pool of money from many investors while an index fund is merely a (significant) subset of a mutual fund. The main differences are brought to light when one considers each fund's objective, management style and return over time. In the case of a managed mutual fund, the lead fund manager determines the goals of the fund. According to Stanford's Student Enterprise Investments Resource Center there are six basic types of mutual funds: equity funds (invested in stocks), fixed-income funds (invested in bonds), money market funds (MMF - reduced risk with low returns), balanced funds (a mix of the above), global/international funds (includes equity from other countries) and index funds (based on an index of a particular market). Excluding index funds from the discussion for a moment, mutual funds can be broken down into three further main groupings: stock funds, bond funds and MMFs. Characteristics of a stock fund would include higher volatility over the
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