Tuesday

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 9 The Real Economy in the Long Run
Chapter 26 of 36 Saving, Investment, and the Financial System
Section 10 of 25
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2 · financial intermediaries, indirect finance: including banks and mutual funds - continued
A mutual fund is an institution that sells shares of a mutual fund portfolio to the public, the portfolio being a group of stocks and bonds.
The shareholder of the mutual fund accepts all the risk and return associated with the portfolio, the same as with owning individual stock shares and bonds.
If the value of the portfolio rises or falls, the shareholder gains or falls.
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The main advantage of mutual funds is they allow people to diversify.
The value of any single stock or bond can greatly vary from day to day and year to year depending on the performance of one company.
Therefore, holding only a single corporation’s stock or bond is very risky.
People who hold a diverse portfolio of stocks and bonds face less risk because they have only a small investment in each company.
The rise and fall of value of a mutual fund is close to the overall stock and bond market.
With only a hundred dollars a person can buy shares in a mutual fund and become part owner or creditor of hundreds of major corporations.
The mutual fund company charges shareholders a fee for their services,
typically between 0.5 and 2.0 percent of total money invested annually.
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A second advantage mutual funds is they give people with lesser amounts of investment money access to skilled professional money managers.
The managers of most mutual funds watch closely the developments and prospects of public corporations.
They actively buy the stock of companies they deem as having a promising future and sell the stock of companies they deem as having an unpromising future.
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Many contend this professional management increases the money return mutual fund share buyers earn.
But, many others are skeptical mutual fund managers can on average increase the money return.
There are thousands of money managers and other traders closely watching each company's prospects, and daily buying and selling their shares.
Therefore, a company's stock price constantly adjusts and is a good reflection of the company's current market value.
In a sense depending on one money manager adds risk as with owning shares of only one corporation.
So, it is difficult to "beat the market" by trying to buy good stocks and selling bad ones, because the market prices for stocks have already adjusted looking forward.
Bad stocks can become good because of their very low current price, and good stocks can become bad because of their very high current price.
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Data has shown passively managed (occasional adjustments) index funds such as Exchange Traded Funds, (ETFs), which contain all the stocks in a given stock index, e.g. all 30 of the Dow 30 actually perform somewhat better on average than mutual funds actively managed by professional money managers.
For example VTI is a total stock market ETF, from ChatGPT:
>ChatGPT: Vanguard Total Stock Market ETF is a broadly diversified U.S. stock market exchange-traded index fund managed by Vanguard that aims to track the performance of nearly the entire U.S. equity market, including large-, mid-, small-, and micro-cap companies. Because it holds thousands of stocks across many industries, VTI is often used as a “core” long-term investment for retirement and general wealth building. It is known for its very low fee, broad diversification, and passive index-tracking approach, meaning it does not try to beat the market but instead seeks to match overall U.S. market performance.<
Index funds can have superior performance and lower costs compared to actively managed mutual funds because they keep costs low by buying and selling rarely and don’t have to pay salaries of professional money managers.
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There are other financial institutions besides the bond market, the stock market, banks, and mutual funds, such as pension funds, credit unions, and
insurance companies.
These, as with all financial institutions, have the function of directing money from savers to borrowers and investors.
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other financial institutions
hoka no kin'yūkkan
他の金融機関
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From Grok:
The Twelve Largest ETFs, as of May 12, 2026 (total invested amount)
VOO — Vanguard S&P 500 ETF (~$947.15 billion)
IVV — iShares Core S&P 500 ETF (~$814.85 billion)
SPY — SPDR S&P 500 ETF Trust (~$755.65 billion)
VTI — Vanguard Total Stock Market ETF (~$635.92 billion)
QQQ — Invesco QQQ Trust, NASDAQ top 100 (~$453.82 billion)
VEA — Vanguard FTSE Developed Markets ETF (~$224.65 billion)
VUG — Vanguard Growth ETF (~$221.94 billion)
IEFA — iShares Core MSCI EAFE ETF (~$181.85 billion)
VTV — Vanguard Value ETF (~$172.82 billion)
IEMG — iShares Core MSCI Emerging Markets ETF (~$159.11 billion)
GLD — SPDR Gold Shares (~$157.68B)
BND — Vanguard Total Bond Market ETF (~$153.88B)