In investing, a fund is a pool of money set aside for a specific purpose. Those pools are often invested and professionally managed.
Examples of funds include:
- Mutual funds, which are managed by professional managers who allocate the funds received from individual investors into stocks, bonds, or other assets.
- Money-market funds, which are highly liquid mutual funds purchased to earn interest for investors through short-term interest-bearing securities such as treasury bills or high-yield corporate bonds.
- Exchange-traded funds (ETFs) are similar to mutual funds but traded on the public exchanges like stocks.
- Hedge funds are investment vehicles designed to increase the return on investors' pooled funds by using high-risk strategies such as short selling, derivatives, and leverage.
- Government bond funds are for investors looking to stash their money away in low-risk investments such as Treasury securities, such as Treasury bonds, or agency-issued debt, such as securities issued by Fannie Mae. The U.S. government backs both alternatives.
How can I use funds when investing?
- You can use them as passive investment tools, as they are usually actively managed by a fund manager or track a particular index or sector of the market. Still, while actively managed funds sometimes beat the market, their fees are often high, which means that after expenses are paid, they end up underperforming the market. On the other side, passive funds like ETFs will not allow you to beat the market either, even if they are cheaper (the average is 0.2% to 0.7%).
- However, funds do provide a natural form of diversification by investing in a wide variety of stocks from different sectors, and they do allow investors to earn a return with zero effort. For investors with loftier goals (returns that "beat the market"), learning how to pick stocks and invest actively might be the only choice.
Debt to Equity Ratio
Used to evaluate a company's financial leverage and is calculated by dividing a company's total liabilities by its shareholder equity.
Profit is the financial benefit realized when revenue from a business is higher than the costs and taxes involved in operating that business.
Alternative investment class composed of funds that invest directly in private companies or that buy public companies and take them private
Time of declining economic activity, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and sales.
A stimulus package is a coordinated effort by the government to increase spending and investment to "stimulate" an economy out of a downturn.
Shorting a stock
Trading strategy that tries to take advantage of the decline in a stock price by borrowing a stock and sell it now while planning to repurchase it later for a lower price.
Market-capitalization-weighted index tracking the performance of the 500 largest U.S. companies