Communal Vehicles for Investing
in a Global Marketplace
An investment fund is a communal vehicle for managing a pool of capital. One way to classify this type of vessel lies in the level of intervention by the operator. On the high end of the scale is the active approach to investment. The object here is to outclass the performance of a suitable benchmark of the market. A case in point is a mutual fund whose goal is to beat the return on investment for an index of large firms listed on the stock market. Another instance is a hedge fund whose stated objective is to garner outsize returns through corporate bonds.At the low end of the scale, the custodians of the investment pool may take little or no initiative in managing the portfolio. Rather, the muted aim is simply to keep up with the performance of a target index. An irony of the financial forum is the fact that the mass of effort put into outpacing the benchmarks is wasted. Actually, the outcome is even worse than that. In the aggregate, the labors of the investors are in fact counterproductive. With remarkable consistency, the average investor lags the market averages. The shortfall of performance applies to the corps of professional managers as well as the throng of amateur players.
Given this backdrop, a growing number of investors have taken up the goal of simply keeping up with the market yardsticks. For this purpose, the express goal of an index fund is to track a benchmark of the market – before accounting for the cost of maintaining the portfolio.
The shares of an index fund may take the form common stock which is listed on a stock exchange. In that case, the pool is also known as an exchange traded fund (ETF).
The resources in this cluster deal with investment funds of all types. The topics at hand include the nature of the communal pools as well as guidelines for investment strategy.