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♪ [music] ♪

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- [Narrator] What is a mutual fund?

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Rather than picking
a particular stock,

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many people invest
in the stock market

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by buying a mutual fund,

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a portfolio of assets
like stocks and bonds

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managed by professionals
for a management fee.

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There are thousands of mutual funds,

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but we can broadly
break them into two types --

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actively managed
and passively managed.

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As its name suggests,

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actively managed funds
are actively managed.

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Experts pick stocks and bonds
and charge fees.

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Passive mutual funds,
on the other hand,

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aren't actively managed.

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No one is trying to pick winners
or avoid losers.

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Passive mutual funds are simply
an investment portfolio

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

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which is a basket
of 500 large stocks

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that represent the U.S. economy.

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

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since no expert is actively
managing the fund.

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♪ [music] ♪

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To learn more
about investing, click here.

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

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♪ [music] ♪

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Still here?

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Check out Marginal Revolution
University's other popular videos.

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