From the course: Finance Foundations
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Investment funds: Managed funds, private equity funds, and hedge funds
From the course: Finance Foundations
Investment funds: Managed funds, private equity funds, and hedge funds
- An alternative to an index fund is a managed fund. Think of a managed fund as a room full of experts who spend all day looking at economic news and financial reports for companies and certain industries so that they can give you an informed investment recommendation. In terms of raw performance, you can see that a manged fund has an advantage over an index fund, because an index fund is just based on some simple mathematical rule. But, the experts who do the stock picking in a managed fund have to be paid. So it's not unusual for a managed fund to have a management fee of three or four percent per year. With that same $10,000 investment that I could put in an index fund and only pay $5 a year to have it managed, for a managed fund, I might have to pay $300 or $400 per year. So there's the trade-off. Do I want low management fees with an index fund where I'm not strategically investing my money, or do I want to go with a managed fund and pay higher fees? You have also heard of…
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