Mutual funds come with a few fees

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.

Mutual funds and taxes

With mutual funds, you can expect a similar tax experience to that of bonds and stocks, although there are a few key differences. Look out for potential taxes on any capital gains or dividend earnings.

ETFs vs. mutual funds: Which are better investments?

Exchange-traded funds and mutual funds have many similarities. They both invest in multiple companies under one fund and trade using the same securities (such as stocks and bonds). However, they have distinct differences—such as fees and management style—that can impact your bank account in the long term.

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

The more services an investor has, the more expensive of a class they’re in. While investors are all technically investing in the same securities with the same investment strategy, different classes dictate extra services and attention given to investors, which can seriously impact an investor’s returns.

Hedge funds, the private investment firms that trade a wide swath of financial assets, make money by imposing steep fees on investors and from the fund's investment performance.

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

Each category has even more varieties of funds to choose from, but the biggest differences between these groups are the types of securities they invest in, their risks, returns, and entrance requirements.

Pros and cons of mutual funds

Depending on your personal investment goals and strategy, different funds can carry different risks and rewards for your portfolio. However, there are some pros and cons that stay consistent across funds, like easy portfolio diversification.

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.

Hedge funds make money from imposing steep fees on investors, as well as from investment performance

Hedge funds often operate on a "2 and 20" model: Investors pay fund managers a 2% management fee, and the hedge fund keeps 20% of their profits. (The 2% is imposed annually, irrespective of performance.) Hedge funds are known for chasing big returns—and taking big risks to get them. This explainer not only breaks down how they work in detail, but also the strategy first introduced in 1949 that still shapes hedge fund investing today.

Compare different mutual funds

Figure out what type of mutual fund is right for you with this tool. Use the search bar to find info on any mutual fund. If you’re deciding between multiple funds, you can select them all to get a comparative analysis on rates, fees, and returns.

The total cost of owning an ETF is the sum of the holding costs and the transaction costs

Holding costs include things like the expense ratio, or the annual fee that a fund issuer charges. Transaction costs include things like brokerage commissions, or the fee that a broker charges to enact a trade. However, in recent years, most brokers have essentially eliminated commissions on ETF trading.

Can random investments outperform managed funds?

The biggest selling point of mutual funds is they're usually actively managed. Depending on your investment strategy, this could be a breaking point. This podcast episode includes a conversation with a Wall Street Journal columnist about why one-off investments are sometimes better for your portfolio than an actively managed investment.

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

That 13.1% figure can help set expectations for how mutual funds will perform in 2024 and 2025, past performance does not guarantee future results.

The price of a mutual fund is based on its net asset value (or NAV)

The NAV is determined by the fund’s overall value minus its debts. A mutual fund’s debt is defined as any of its outstanding (or unsold) shares.

Fees can eat away at your 401(k)

Every investment plan has an expense ratio—a percentage of the total assets that goes to the investment manager in the form of fees. Because 401(k) plans are so common, and many of their participants are not savvy investors, the relative expense ratio for them has often excessively increased.

Mutual funds were first created and sold in the US in 1924

Mutual funds were created in 1924, became popular in the '80s and '90s when investors saw a better payoff. Since then, they’ve evolved to be one of the most popular investment options today.

Companies pay multiple fees as part of the IPO process

When a company decides to approach IPO, it typically hires investment bankers—who earn about 7% of the IPO’s gross proceeds—to help set the organization’s target valuation range and schedule an IPO date. But that isn't the only fee associated with the IPO process.

Open-end and closed-end funds differ in how they create and distribute shares

Open-end funds are able to create new shares on a daily basis, while closed-end funds have a set number of shares. This impacts the way shares are traded on the open market, and the way they’re priced.

Not all alternative investments are easy to invest in

For instance, some alternative investments are only available to accredited investors or high-net-worth individuals. Others have relatively high fees compared to traditional investments.

Learn how to invest in index funds with this step-by-step guide

There are a few questions experts suggest answering before investing in an index fund, such as your goals for your investment and the index you want to track. This article walks you through those questions to help you get started.

Investing in bonds comes with a few risks

Think: changes in interest rates that impact the bond’s value, or a bond issuer completely defaulting on a loan. There are steps investors can take to lower their initial and future risk when investing in the bond market, such as checking a company's bond rating before investing.

Some banks derive half of their income from overdraft fees on checking accounts

The fees are incurred when a customer withdraws more money than is left in the account, typically around $35 per overdraft. One in 11 Americans pays more than $350 a year in such fees, generating tens of billions of dollars each year for banks..

Merchants have to pay credit card transaction fees each time a card is swiped

Credit card networks such as Visa, Mastercard, and American Express must calculate fees for not only the customer, but also the merchant in every transaction.

Investors need a 'margin account' to short sell stock

Margin accounts are leveraged accounts through brokerage firms that allow investors to make trades without the full amount of capital on hand. Similar to a secured loan, margin accounts often require some form of collateral and typically have a cap on how much investors can borrow. However, trading with a margin account is much riskier than a traditional investment account. Fees and charged interest are due on margin accounts, regardless of trade performance, meaning it's possible for investors to lose more money than just their initial investment.

While the first exchange-traded fund (a 'basket' of different assets that can be bought and sold on a stock exchange) in the US only launched in 1993, the global ETF market has grown to more than $10T in the short time since.

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Periodically, the Federal Open Market Committee decides whether to raise, hold, or lower the federal funds rate

The federal funds rate is the interest rate at which banks lend their excess funds through the Fed. This influences what banks are willing to pay consumers for their deposits in savings and CD accounts. Typically, the higher the federal funds rate, the higher the interest rates on CDs.

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