90 percent of active managers of large public funds underperform

High fees tend to eat away at whatever edge professional managers accrue, resulting in most such funds performing worse than their underlying benchmark indexes like the S&P 500.

Read about the pros and cons of mutual funds.

In the early 2000s, Warren Buffett invested $1M in an index fund to show that passively managed investments would outperform hedge funds—making the point that actively managed funds are not worth the management fees they charge.

Mutual funds invest in multiple different companies with money from many investors, while an individual stock invests in one company with funds from a single investor.

How mutual funds work

Mutual funds function similarly to other types of investments. If you want to invest, you go through a brokerage firm. However, they have a few key differentiators. Most are actively managed by a broker instead of passively earning you returns. Plus, they can carry some hefty fees.

Investing in mutual funds can give you access to a wide range of securities, such as stocks and bonds, with just a single investment.

Active investors try to 'beat' the stock market's performance

There are two primary types of investment strategies that professional investors use: active investing and passive investing. While active investors try to "beat" the stock market's performance, passive investors have a bit more faith in the system.

People often invest in alternative investments to diversify their portfolios

Because alternatives often have little correlation with traditional investments like stocks and bonds, adding them to a traditional portfolio can reduce its overall risk exposure.

Mutual funds in seven broad categories averaged a 13.1% annual return in 2023.

Mutual funds come with a few associated fees.

Mutual funds pool money to create larger investment opportunities with higher returns for anyone who initially invests in the fund.

ETFs and mutual funds both pool money into a basket of investments—but the key difference between them is that mutual funds trade just once per day after the market closes, while ETFs trade like stocks throughout the day at fluctuating prices.

One $100 investment in the Medallion Fund skyrockets over time

The Medallion Fund, the famously secretive quant fund that invests billions of dollars for the partners and employees of a single firm with a legendary track record, has trounced the market for more than three decades. While its results are an extreme outlier, this visualization showcases the power of compound interest.

Alternative investments can be sorted into seven major categories, according to some experts

These categories include real estate, private equity, private debt, hedge funds, collectibles, and more.

Mutual funds are categorized as stock, bond, money market, and target-date funds.

Alternative investments can include everything from cryptocurrency to fine art

The financial assets typically fall outside the scope of traditional investments like stocks and bonds, and they’re often intended to diversify investor portfolios.

Index funds are typically structured as either mutual funds or exchange-traded funds, but investors can manually recreate an index through 'direct indexing.'

When compared to stocks and bonds, alternative investments are often less regulated

Alternative investments are also often less liquid than traditional investments; they carry unique risk, return, and tax considerations.

Figure out what type of mutual fund is right for you with a tool that lets you compare different mutual funds, from rates to returns.

The 'Big Three' asset managers—Vanguard, State Street, and BlackRock—collectively manage more than $30T in assets and are the largest shareholders in roughly 88% of all the companies listed on the S&P 500.

Mutual fund share classes are rankings of different types of services for investors.

Retail investors are getting burned by long/short strategies

In the US, many retail investors lack the SEC-mandated status (a high enough net worth, income, and other factors) to directly invest in hedge funds. The regulator considers hedge funds too risky for the masses. Hedge fund-like strategies have emerged as a workaround, despite potential pitfalls.