Quiz: Funds for Investing
Funds let you own a basket of investments in a single buy. See if you can tell an ETF from a mutual fund and active from passive management.
Howdy Wall St. Willy! Sometime ago we talked about Actively Managed Funds and Passively Managed Funds. But can you tell me some of the differences between them?
The main difference between actively managed funds and passively managed funds is their investment philosophy.
Which means that the actively managed funds believe that getting returns better than the market or beating the market is possible. So, they use research and analysis to make their investments to beat the market.
However, passively managed funds believe that beating the market is not possible, so they make their investments to mirror an index, which means that they buy the same stocks, bonds or other securities that the index that they are following buys.
How about their cost and expense ratio? Is that different too?
Yes, it is different. Actively managed funds trade frequently and hire research analysts. So, their costs and expense ratio are usually high.
On the other hand, passively managed funds trade quite infrequently and don’t need to hire research analysts. So, their costs and expense ratio are usually very low. Sometimes they could be as low as 0.05%!
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Are they different in terms of income tax as well?
Yes. Due to their frequent trading, actively managed funds result in a higher income tax liability compared to passively managed funds.
Well, what asset class do they invest in?
Both actively and passively managed funds invest in stocks, bonds and other securities.
Well, what should Actively Managed Funds and Passively Managed Funds be used for? Like are their uses different?
Actively managed funds are usually good for investing in fixed income or debt, whereas passively managed funds are usually great for investing in stocks or equities.
Thank you very much for telling me about some of the differences between Actively Managed Funds and Passively Managed Funds, Wall St. Willy.
You are welcome, Sooper Cooper. Remember, Finance is Your Friend!
Podcast: Actively Managed Funds vs Passively Managed Funds
Fun, informative and concise episodes by a 16-year old, breaking down complex financial concepts in a way that kids and beginners can understand. Episodes cover personal finance topics like saving, investing, banking, credit cards, insurance, real estate, mortgage, retirement planning, 401k, stocks, bonds, income tax, and more, and are in the form of a conversation between a cowboy (a finance novice) and his friend, a stock broker. Making finance your friend, only at Easy Peasy Finance.
A little bit about me: I have been fascinated with the world of personal finance since I was 6! I love to read personal finance books, and keep myself updated on the latest by reading various personal finance magazines. My friends often ask me questions about finance because they find it complex and intimidating. That’s what inspired me to start my YouTube channel called Easy Peasy Finance when I was 8, and this podcast 2 years later.
Everything you need to know about the differences between Actively Managed Funds and a Passively Managed Funds: Cost and expense ratio of Actively Managed Funds and a Passively Managed Funds, income tax on Actively Managed Funds and a Passively Managed Funds, the asset classes they invest in, what should Actively Managed Funds and Passively Managed Funds be used for, and more.
See transcript and show notes at: https://easypeasyfinance.com/comparison-actively-managed-funds-vs-passively-managed-funds/
