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- [Narrator] What is a mutual fund?

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Rather than picking[br]a particular stock,

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many people invest[br]in the stock market

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by buying a mutual fund,

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a portfolio of assets[br]like stocks and bonds

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managed by professionals[br]for a management fee.

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There are thousands of mutual funds,

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but we can broadly[br]break them into two types --

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actively managed[br]and passively managed.

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As its name suggests,

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actively managed funds[br]are actively managed.

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Experts pick stocks and bonds[br]and charge fees.

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Passive mutual funds,[br]on the other hand,

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aren't actively managed.

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No one is trying to pick winners[br]or avoid losers.

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Passive mutual funds are simply[br]an investment portfolio

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of a big basket of stocks,[br]such as the S&P 500,

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which is a basket[br]of 500 large stocks

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that represent the U.S. economy.

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The fees for a passive fund[br]are much lower than an active fund,

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since no expert is actively[br]managing the fund.

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To learn more[br]about investing, click here.

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Or, to test your knowledge[br]on mutual funds, click here.

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Still here?

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Check out Marginal Revolution[br]University's other popular videos.

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