From the course: Foundations of Treasury Management
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Investment funds: Vanguard and Berkshire Hathaway
From the course: Foundations of Treasury Management
Investment funds: Vanguard and Berkshire Hathaway
- A key aspect of investing is that we can reduce our risk through diversification. Don't put all your eggs in one basket. An investment fund company helps me do this diversification for a fee. So here's what happens with an investment fund. First, you send them your money with instructions. "Here's how I want you to invest my money." Then the investment fund invest the money on my behalf. There are two general types of investment funds, index funds and managed funds. Think of an index fund as a computer. I send in my $3,000 to the index fund and say, "Pick the 500 largest companies in the United States and just spread out my $3,000 investment among those 500 companies." Index funds are very popular, because their management fees are very, very low. I've seen index funds with fees as low as 0.04% per year. Meaning if you invest $10,000 in an index fund, you're only going to pay $4 to have that $10,000 investment guarded…
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