Mutual Fund
Definition
A pool of money from many investors, managed by a professional fund manager who picks stocks, bonds, or other assets. Unlike ETFs, mutual funds trade once per day after the market closes. They come in actively managed (someone picks investments) and passively managed (tracks an index) varieties.
Why It Matters
Mutual funds were the go-to investment vehicle before ETFs. Many 401(k) plans still offer mostly mutual funds. The key is watching expense ratios — actively managed funds charge 0.5-2% annually while index mutual funds charge 0.03-0.20%.
Example
Vanguard Total Stock Market Index Fund (VTSAX) is a mutual fund with a 0.04% expense ratio that holds 4,000+ stocks. Minimum investment: $3,000. Compare that to an actively managed fund charging 1.2% that may not even beat the index.