Savings and Investments

Mutual Funds

What is the final category of funds?

The last category of funds are index funds. Index funds purchase a share in each of the stocks that comprise a certain index, like the S&P 500 or Dow Jones Industrials, and seek to mimic the returns that the index may obtain. These funds have the lowest management fees, since there is very little management needed to maintain the portfolio, as the managers are merely buying shares weighted exactly as the index. This enables investors to minimize their risks by having the volatility of the portfolio distributed over dozens, if not hundreds or thousands of stocks. Ultimately, the return that you get is the same as whatever the return of that index is in any given period of time.


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