The meteoric rise and subsequent fall of GameStop dominated the recent news. The narrative being individual investors try to take on Hedge Funds. Which got me wondering, what even is a hedge fund?
I don’t think that’s it.
So, I have heard of investment funds before. That’s when my money gets pooled with other people’s money. Quickly walking through a few types:
Money Market Funds
There are money-market funds, which are super-safe, like keeping your money in a savings account. It’s still pooled money that’s invested but in some of the safer investments like Treasury Bills.
Quick aside to answer what is a Treasury Bill. It’s like if the US Treasury (read: government) asked you for a loan just like some deadbeat in-law would. It’s super-safe because, unlike the in-law, the government won’t skip town to avoid paying you back.
That reminds me of an old joke: if you lend your brother-in-law $50 and he never speaks to you again, was it worth the investment? Haha, dysfunctional family humor.
There are also index funds and exchange-traded funds, typically shortened to ETFs, and that’s pooled money that aims to match a particular index. An index is just an established finance benchmark, like the S&P 500 (a collection of 500 US stocks) or the DOW (a group of 100 US stocks). These are typically a means of just trying to match the market.
The pioneer of these types of investments was Jack Bogle, the founder of Vanguard. Way back in the 1970s, he was simplifying investing by creating these funds.
Today there are devout fans of Jack Bogle called Bogleheads. I’ve encountered this group on message boards, and not always in a friendly way. They don’t see eye-to-eye with The Motley Fool, which recommends individual stocks. They are all-in on the philosophy of making index funds your primary investment vehicles (unsure why they call types of investments vehicles, I find that term always takes my mind in other directions).