Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 352

also translate to bad performance for the fund. The fund in essence is at the mercy of the index.

So which fund should you invest in? The answer is that it probably doesn't matter. Many studies have shown that no matter how much a fund tries to outsmart the market, in the long run it will probably match the market at best. Many studies have also shown that a good number of actively managed funds have actually lagged the market over the long haul. Of course there are always a few shining stars. Fidelity Magellan, an actively managed fund headed by Peter Lynch in the late 70s and through the 80s, consistently beat the market during his tenure. Was Peter Lynch a great stock picker or just lucky? We may never know. Making a choice between an actively or passively managed fund comes down to personal taste. If you are a believer in indices then an index fund may just be your ticket; otherwise you could choose from a bevy of actively managed funds out there.

Portfolio Makeup

One general approach in categorizing funds is to consider the securities (stocks, bonds, cash) that they are invested in. Some funds invest in one type of security, but many invest in a mixture to achieve diversification and therefore minimize risk. Based on investments we can have the following types of funds:

Stock (Equity) Fund - This type of fund invests mainly (if not entirely) in common stocks. Depending on the types of stocks invested, this category can be further broken down resulting in more detailed categories, some of which include:
Large-Cap Fund - Invested in large-cap stocks (e.g., blue chip stocks) such as those in the S&P 500 index .
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  • Book Chapters
    Table of Contents Copyright and Disclaimer Foreword Money
    Bonds Futures Stocks Options
    Mutual Funds Retirement Final Words Appendix A

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