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Investing Through Mutual Funds and ETFs
You can invest in all three major asset classes through mutual funds, which pool your money with that of other investors. Each fund's manager selects specific securities to buy based on a stated investment strategy.
Mutual funds offer two key benefits. Because most mutual funds own dozens or hundreds of securities, you achieve greater diversification than buying a few individual securities on your own. Also, the fund manager's expertise is part of what you pay for in buying mutual fund shares.
A mutual fund may invest in one of the three asset classes, or combine them. For example, a balanced fund typically includes stocks and bonds. A lifecycle or target fund adjusts its mix of investments over time, investing more conservatively as the fund's target date gets closer. With an actively managed mutual fund, the fund manager buys and sells specific securities, trying to beat a benchmark index such as the S&P 500. A passively managed or index fund tries to match the return of a specific index by holding only the securities included in that index.
Exchange traded funds (ETFs) are a different type of passively managed fund. Like index funds, they invest in a group of securities represented in a specific index. Because of this passive style, ETF expenses typically are lower than those of actively managed mutual funds. Unlike mutual funds, ETFs are traded throughout the day as stocks are, and can be bought on margin.
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Prosper Planning is a Division of Hearthstone Financial, Inc. Professional Advisors of Hearthstone Financial, Inc. offer securities and investment advisory services through, and are Registered Representatives and Invesment Advisor Representatives of, Southwest Texas Capital, LLC. Member FINRA, SIPC and Registered Investment Advisor. Hearthstone Financial, Inc. and Southwest Texas Capital, LLC are separate entities. Hearthstone Financial, Inc. is not a CPA firm. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific.
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