The idea of diversification is that it’s smarter to own a variety of stocks
and bonds than trying to meet your financial goals based on the successful performance of just a few. But diversifying can be a challenge because buying a portfolio of individual stocks and bonds can be expensive. And knowing what to buy—and when—takes time and concentration. Mutual funds offer one solution: When you put money into a fund, it’s pooled with money from other investors to create much greater buying power than you would have investing on your own. In an actively managed fund, professional managers decide what to buy and when to sell. An index, or passively managed, fund holds all or some of the securities in an index. As a fund shareholder, you own the fund’s underlying investments indirectly rather than outright, as you do when you buy stock. Since a fund may own dozens of different securities, its return isn’t dependent on just a few holdings. Like stocks, ETFs are listed on a securities exchange, purchased through a brokerage account, and traded throughout the day at prices set by supply and demand and other market forces. You can give limit as well as market orders.   Read more…