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Index Funds vs Mutual Funds vs Hedge Funds vs ETFs | What's the Best Investment in 2025?
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May 13, 2025
Confused about Index Funds, Mutual Funds, Hedge Funds, and ETFs? In this video, we break down each one in simple terms, so you can understand the differences, benefits, risks, and which one is best for you in 2025. Whether you're a beginner or looking to diversify your portfolio, this guide will help you make smarter investment choices! Timestamps: 00:00 - Introduction 01:12 - What are Index Funds? 03:25 - Mutual Funds Explained 05:40 - Hedge Funds Overview 07:55 - ETFs Simplified 10:10 - Which One Should You Choose in 2025? Tags: #IndexFunds #ETFs #Investing2025 #HedgeFunds #MutualFunds #FinanceForBeginners #InvestmentTips Subscribe for more financial insights every week!
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0:00
index funds mutual funds hedge funds or
0:04
ETFs i'm sure you've heard about this
0:08
before in this video I'm going to
0:10
explain these types of investments in a
0:13
super simple and practical way
0:16
we'll start with what a fund actually is
0:19
then go over the different kinds how
0:21
they're managed the risks involved the
0:24
fees you might pay the strategies they
0:27
use and most importantly who they're
0:30
really meant
0:31
for so please give me 10 minutes and
0:34
I'll give you the knowledge most people
0:36
take years to figure
0:38
out but first of all I would like to
0:41
make clear that this is not any kind of
0:43
financial advice
0:45
all right before diving into every kind
0:48
of fund first let's understand what a
0:50
fund actually
0:51
is imagine you and your friends are
0:54
organizing a birthday party instead of
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one person buying everything each of you
0:59
puts in a little money with that pulled
1:01
budget you can get food drinks
1:04
decorations cake and even music no
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single person has to worry about
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covering everything and everyone gets to
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enjoy the full experience without the
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stress of managing it all
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alone that's exactly how a fund works a
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group of people pull their money
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together and that money is used to
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invest in a variety of assets like
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stocks real estate or bonds instead of
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trying to manage each investment
1:31
yourself the fund handles it for you and
1:34
you get to share in the overall results
1:38
now that you've got a clear idea of what
1:39
a fund is let's dive into the different
1:42
types starting with index funds which
1:45
are probably the most talked about on
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social
1:49
media you've likely heard influencers or
1:52
finance creators say things like "Just
1:54
throw your money into an index fund and
1:57
forget about it." But what does that
1:59
actually
2:00
mean all right an index fund is a type
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of fund that doesn't try to pick winning
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stocks instead it simply copies a list
2:09
or index of
2:11
companies but what exactly is an index
2:15
think of it like a scoreboard or a
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sample group it's a list created to
2:20
represent a certain part of the market
2:22
for example the S&P 500 is an index that
2:26
tracks 500 of the biggest most
2:28
established companies in the United
2:30
States the bigger the company is the
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more weight it has on the index if the
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S&P 500 goes up it usually means the
2:39
market as a whole is doing well there
2:42
are all kinds of indexes out there some
2:45
indexes track tech companies in the US
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like the famous NASDAQ this index
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includes giants like Apple Microsoft and
2:54
Amazon and it's seen strong growth over
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the past decade thanks to the rapid rise
2:59
of technology
3:01
then there are industrial focused
3:03
indexes like the Dow Jones Industrial
3:06
Average or just the Dow this one tracks
3:09
30 large well-established companies
3:11
across different industries think
3:13
Coca-Cola Boeing and Johnson and Johnson
3:17
there are also indexes for small
3:19
companies international markets emerging
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economies and even specific sectors like
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energy or healthcare i think you got the
3:27
idea no picking no
3:30
guessing index funds are passively
3:33
managed which means there's no one
3:35
actively choosing what to buy or sell
3:38
they just follow the index and that's
3:41
actually a good thing because it keeps
3:43
the fees super low you're not paying for
3:46
a manager just a system most index funds
3:49
charge an annual fee called an expense
3:52
ratio of anywhere from
3:54
0.02% to 0.20%
3:58
that means if you invest $1,000 you
4:01
might pay just 20 cents to $2 per year
4:03
in fees incredibly
4:06
right some of the most well-known
4:08
companies that manage index funds are
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Vanguard Black Rockck which runs the
4:13
EyesShares funds and
4:15
Fidelity index funds are also known for
4:18
being low risk relatively speaking
4:21
because your money is spread across
4:22
hundreds of companies if one company has
4:25
a bad year it probably won't tank your
4:28
whole investment depending on the fund
4:30
of
4:32
course before we move on there's
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something really important to understand
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about how index funds work especially
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when it comes to buying and selling them
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unlike stocks or ETFs you can't buy an
4:44
index fund at any time of the day and
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lock in the current price
4:49
instead index funds are only priced once
4:52
per day after the market closes that
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price is called the net asset value it's
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calculated by taking the total value of
5:00
all the assets in the fund minus
5:03
expenses divided by the number of shares
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the fund has so if you place an order to
5:09
buy or sell an index fund at 11:00 a.m
5:12
your trade won't go through at that
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moment it will be processed at the net
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asset value calculated after the market
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closes typically at 400 p.m this is
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what's known as the cutoff time if you
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place your order before the cutoff your
5:27
trade will be executed on that day this
5:31
can vary depending on the fund
5:32
management company you're using some may
5:35
take a few days to process and execute
5:37
your order
5:39
this system makes index funds simple and
5:42
consistent but it also means you don't
5:44
have real-time control over the exact
5:46
price you'll get for most long-term
5:49
investors that's totally fine but it's
5:52
something to be aware of so you're not
5:54
surprised when the trade doesn't go
5:55
through right
5:57
away so why are index funds so popular
6:01
simple they're low cost loweffort and
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historically they perform pretty well
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over the long term
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that's why a lot of experts even Warren
6:11
Buffett recommend them for most
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investors because it's extremely
6:15
difficult to consistently outperform the
6:18
market all right now let's talk about
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mutual funds at first glance they might
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seem similar to index funds they both
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pull money from many investors and
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spread it across a bunch of assets but
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the big difference is in how they're
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managed mutual funds are usually
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actively managed that means there's a
6:37
professional fund manager or even a
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whole team actively deciding which
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stocks or bonds to buy and sell trying
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to beat the market the goal is to
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outperform a benchmark like the S&P 500
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by picking the right investments at the
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right time now that might sound great in
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theory but here's the catch active
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management usually comes with higher
6:59
fees mutual fund expense ratios often
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range from
7:03
0.5% to
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1.5% and sometimes even higher and
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studies have shown that most actively
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managed funds don't consistently beat
7:13
the
7:14
market still some people prefer mutual
7:18
funds because they believe in the fund
7:19
manager strategy or they want exposure
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to specific sectors countries or asset
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types that may not be available through
7:27
index funds it is also a way of
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diversification some of the biggest
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mutual fund providers include Vanguard
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Fidelity and JP
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Morgan these offer a wide range of funds
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some of which are actively managed and
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others passively managed so it's
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important to check what kind of fund
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you're investing in moreover just like
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with traditional index funds mutual
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funds also execute trades at the end of
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the day you can place your buy or sell
7:56
order at any time but it will only be
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processed after the market
8:01
closes let's move into hedge funds which
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are a completely different kind of
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investment compared to index funds
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mutual funds or
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ETFs the name hedge comes from the idea
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of hedging risk but in reality hedge
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funds are more about chasing higher
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returns and they do it using more
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aggressive and complex
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strategies so what exactly is a hedge
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fund it's a private investment fund that
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pulls money from wealthy individuals or
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institutions and invests it in a wide
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range of assets stocks bonds real estate
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currencies derivatives etc but unlike
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mutual funds or index funds hedge funds
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often use strategies like shortselling
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leverage which is borrowing money to
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invest more and derivatives to try to
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generate high returns
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they're actively managed by fund
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managers who often have a lot of freedom
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to make bold investment moves this can
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lead to huge profits but also huge
9:02
losses that's why hedge funds are
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usually only open to accredited
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investors people with a high net worth
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or income because the risks can be much
9:11
greater and the fees hedge funds are
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known for the famous 2 and 20 model a 2%
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annual management fee plus 20% of any
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profits the fund makes that's a lot more
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than index or mutual funds charge so to
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make it worthwhile hedge funds aim for
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much higher returns but that also comes
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with higher
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volatility finally let's talk about ETFs
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or exchangeraded funds
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these are often seen as a hybrid between
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index funds and individual stocks
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because just like a stock they trade
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throughout the day on the stock exchange
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but like index funds they provide
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diversification by pooling investments
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in many different assets etfs are bought
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and sold throughout the day just like
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stocks that means you can track their
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price in real time and decide when to
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buy or sell based on market conditions
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making them more flexible
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etfs also have low fees typically lower
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than actively managed mutual funds their
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expense ratios usually range from
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0.03% to
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0.75% depending on the type of ETF and
10:25
management and because they're passively
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managed in most cases they follow an
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index meaning they're designed to track
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the performance of a particular sector
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industry or market as a whole that means
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that if you want to invest in the S&P
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500 you are able to do it using an index
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fund or an ETF that replicates this
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index plus many ETFs can be bought on
10:50
brokerage platforms with no commission
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fees making them very
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accessible in conclusion for most
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everyday investors index funds or ETFs
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are usually the best choice they're
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lowcost easy to understand and offer
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broad diversification perfect for
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long-term
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investment mutual funds may be suitable
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if you believe in a specific fund
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manager strategy or want exposure to
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certain sectors but keep in mind the
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higher fees and uncertain
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performance hedge funds are designed for
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high- netw worth individuals who are
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willing to take on more risk and pay
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higher fees for potentially higher
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returns they're not typically for the
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average
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investor that's everything I wanted to
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make clear i hope you understand every
11:37
kind of asset if you did I would really
11:40
appreciate it if you liked the video and
11:42
subscribed i will leave this video here
11:45
which you will probably like as well
11:47
thanks for watching and see you very
11:49
soon
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