Mutual Funds

What You Should Know About Mutual Funds | Business

Cost structure

Unlike index funds that are passively managed and aim to mirror a set index, mutual funds are actively managed by professional investors and aim to beat the market. Because they’re actively managed, they tend to be costlier than index funds. The primary fee with mutual funds is its expense ratio, which is a percentage charged annually based on the value of your investment.

For example, if you have $100,000 in a mutual fund with an expense ratio of 2%, you’d pay $2,000 in fees. Fees vary by fund, but they’re one of the most important aspects to consider when deciding whether or not you want to invest in a fund. High fees eat away at your returns, and there’s no guarantee that a fund with higher fees will generate higher returns.

What may seem like a small difference in fees between funds can end up being worth a lot over time. If you put $20,000 into two funds that each returned 8% annually but had a 1% and 2% fee, respectively, the difference between the two funds would be around $13,250 after 20 years.

Consider your investment strategy


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