You and thousands of others put money in one pot. A manager can pick the investments, or the fund can simply copy a list like the S&P 500. That second kind is an index fund. Either way you pay a yearly fee.
Try it
Pick a kind of fund:
You invest$5,000
Yearly fee1.0%
Growth per year, before fees+7%
−12%0+12%
For how many years20
Growth is your guess for how much the investments earn or lose each year. Slide left for a down market, right for an up one. 7% is a common long-run guess, but real returns vary and are never guaranteed. Fees come off the top.
What you'd have
Your $5,000 became · after 20 years
$16,036
+$11,036 · +221%With a 1.0% yearly fee and +7% growth
Index fund · 0.1% fee
$18,990
Extra fees cost you
−$2,954
What just happenedA manager picks the stocks and charges for it. That fee comes out every year, whether the fund does well or not. Compare it with the index fund.
Good to know: a mutual fund is priced once a day, after the market closes.