Mutual Fund

A mutual fund pools money from many investors and has a professional manager spread it across shares or bonds. Even a small amount buys exposure to dozens or hundreds of holdings.

Its main advantages are diversification and delegation. Buying a hundred positions yourself takes serious money and time; a fund does it in one transaction, and the manager handles selection and maintenance.

The trade-off is cost. Management and distribution fees are deducted from assets every year, and at 1.5% a year, more than a quarter of the original capital goes to fees over twenty years. The expense ratio matters as much as past returns when choosing a fund.

Trading also differs from ETFs. Mutual funds transact at a net asset value struck once a day, while ETFs trade continuously like shares. In recent years money has moved heavily toward low-cost index funds and ETFs. When choosing funds, look at the actual holdings rather than the name. Funds with quite different names often hold nearly the same top positions.