To be safer, you might decide on an investment fund. You and other investors pool your money and buy stocks (or shares) in a number of companies. Owning stocks from a number of companies is called diversification. This is an important way to reduce risk.
Two of the most popular types of funds that you can buy are exchange-traded funds and mutual funds.
Exchange-Traded Funds
Exchange-traded funds or ETFs are traded on public stock exchanges. They’re usually, but not always, passive investment pools where the fund manager only makes minor changes now and then to keep the fund in line with its index.
The manager of an ETF has to buy all of the stocks in the index it is trying to match. For example, an ETF based on the Dow Jones Industrial Average will buy and hold the 30 stocks that comprise the Dow Jones Industrial Average.
An ETF based on the Standard & Poors 500, also called the S&P 500, will buy and hold the 500 stocks in that index.
The idea behind passive investing is to match the return of a particular index. The management of the ETF doesn’t make the decision as to which stock is better than another stock. The ETF simply owns all the stocks in an index, like the Dow Jones.
Tip: It is NEVER too early to start teaching children to be smart about money. Check out my Guide for Kids and Money for more information, available on Amazon.
Stock Mutual Funds
Now, let’s talk about stock mutual funds. Stock mutual funds are not bought and sold on a public stock exchange. Often, but not always, a stock mutual fund is an active investor.
What does that mean? It means that the management of a stock mutual fund makes an active decision as to which stocks have better financial prospects than other stocks and then buys those stocks.
The philosophies that the stock mutual fund manager uses to make those judgments can vary widely.
One common difference is between a value philosophy and a growth philosophy. The management may follow a value-based philosophy focusing on stocks that it believes are undervalued. how to begin investing
Financial Psychology – https://youtu.be/U36BGMQjB3g
Money Management – https://youtu.be/wnBB_L6ZlQ8
Debt – https://youtu.be/bZjkBH7NFWM
Investing – https://youtu.be/xj2PnFylEOM
Kids Starting Businesses – https://youtu.be/f0VA7y9kidM
DISCLOSURE: ATM, an Amazon affiliate, may earn a small fee to support this blog if you follow a link to these helpful resources:
ESSAYS OF WARREN BUFFETT – https://amzn.to/2KgfaPs
THE SNOWBALL: WARREN BUFFETT AND THE BUSINESS OF LIFE – https://amzn.to/32ICZWJ
THE INTELLIGENT INVESTOR – https://amzn.to/2phrNCS
THE MILLIONAIRE NEXT DOOR – https://amzn.to/2Xau4wf
THE TOTAL MONEY MAKEOVER – https://amzn.to/34X97HD
YOUR MONEY OR YOUR LIFE – https://amzn.to/2OjMFlx
GETTING TO YES – https://amzn.to/2OaoO7L
