49. Better w/ My Finance-Sis, Pt 2: Funds
Market MakeHer Podcast
Passive vs Active Funds Overview
Jess Inskip and Jessie contrast passive funds (low fees, benchmark tracking) with active management.
Continuing our "Better with my Finance-Sis" Mini-Series, in part 2 we talk all about Funds! But not just the different types of investment funds, also the difference between Passive and Active Funds.
Passive Funds vs Active Funds
What is a passive fund?
Passive funds usually have lower expense ratios, with a more simplified investment strategy and less involvement of fund managers (or they can also be managed by computers).
They do still follow a benchmark and aim to deliver returns with that benchmark, and are still subject to 2 important items we need to cover called: expense ratio and tracking error.
Tracking Error Defined: Tracking error is a measure of how closely a portfolio follows the index to which it is benchmarked.
Expense Ratio Defined: The expense ratio is how much of a fund's assets are used towards administrative and other operating expenses. Because an expense ratio reduces a fund's assets, it reduces the returns investors receive.
What is an active fund?
Active funds typically feature higher expense ratios, attributed to the fund manager's in-depth research, analysis, and management efforts.
Funds We Discuss:
- Money Market Funds
- Mutual Funds
- Target Date Funds
- ETFs - Exchange Traded Funds
- Fixed Income Funds
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