The stereotypical process of buying a mutual fund involves a relatively complicated procedure. First, you talk to your financial advisor about your goals. Then you listen to them recommend a fund that fits into some type of investment strategy (highest commission structure, maybe?). Finally, you go off and live your life, while they launch the mysterious process (and byzantine paperwork) necessary to buy into the fund. (Or you just go to a website and fill out a form and wire in the dough; hello, Schwab.)
Exchange traded mutual funds streamline the process. They provide the ability to buy a mutual fund on an open exchange, much like buying an individual stock. They essentially form a subset of Exchange Traded Funds, or ETFs. The goal is to buy into a basket of stocks (or other assets) with one investment vehicle.
Using exchange traded mutual funds provides efficient diversification. Plus, the mutual fund aspect gives you access to some of the benefits of actively managed funds, rather than the index-based funds that populate much of the rest of the ETF space. In theory, professionals running your money should be better than just an index of a given set of stocks, but in practice, that no longer happens. (It did regularly in the 70s and 80s when pro fund managers regularly beat the market.) Today, with taxes and so many competitors, "deals" are relatively easy to spot, and most fund managers lag index funds over 5-10 year periods of time. With taxes, it's even worse, as fund managers sell, realize gains, get taxed, and add even more friction to the process.
See: Net Asset Value. See: Mutual Fund.
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Finance: What is a Diversified Mutual Fu...20 Views
finance a la shmoop what is a diversified mutual fund? all right people
listen up it's lots of investments stocks bonds exposure to risk and reward [Risk and reward punch man in face]
everywhere energy, telecom, insurance, real estate, banking, chemicals, tech, retail not
enough diversity yet well those are just sectors or industries and there's a
whole bunch of them what about geography geographic diversity the US, Russia, China
Europe someday maybe Mars Elon what do you think well maybe exposures to [Elon Musk floating in space]
different currencies or commodities cycles as the diversity you seek hmm
well that's diversity Benetton eat your heart out so the bigger question is why
would you want such diversity? well the idea is that you mitigate risk by being
diverse the don't put all your eggs in one basket thing if one investment goes [Value of investment graph appears]
bust well at least you have plans B C and D to fall back on and if this is
grabbing you check out our videos on efficient markets theory for more on the
subject or maybe diversify your knowledge and watch all of our finance
videos food for thought and you know please click on the ads that we got to [Man holding begging sign]
eat around here
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