Words have meaning and many investors believe that if their investments have names that include “balanced”, “total return”, or “diversified growth” then this must be so. Unfortunately, what investments say they are often differs from what the investments truly are.
Today, there are almost 46,000 individual securities along with almost 9,000 mutual funds and 1,100 Exchange Traded Funds (ETF’s). The breadth of investment choices can be overwhelming. This complexity often provides an opportunity for the transaction-based Wall Street brokerage firms, banks and insurance vendors to take advantage of investors.
What are Mutual Funds?
Mutual funds are the most widely held investment, but mutual funds are really a method of investing. Mutual funds typically own dozens, hundreds or even thousands of individual securities (stocks or bonds). These stocks or bonds might be actively managed, where the fund manager seeks to obtain performance from selection and timing; or passive, where the fund holdings are within a particular asset class or index.