Most mutual funds are managed, which is to say there is a human being who is tracking the fund and making buying and selling decisions all of the time. Some mutual funds are more actively managed and some less so. Mutual funds that are not managed include those that follow a particular index. Probably the best known indexes are the Nasdaq 100, the Standard and Poors 500 (S&P 500), and the Wilshire 5000.
Managed mutual funds are more costly because you are paying the manager to actively buy and sell stocks in the fund in an attempt to maximize gains. The more actively managed a fund, the more costly and, in many cases, the more volatile. While it might be assumed that an actively managed fund would bring greater gains than an un-managed fund, that isn’t necessarily the case. While an actively managed fund might have some big gainers in its basket of stocks, it can also have some big losers.
Over time, the index funds have proven to bring in very reliable gains. The S&P 500, for example, buys all of the top 500 companies in America across all industries. That’s’ it! Companies may come and go on the 500 list, but not very often. The Wilshire 5000 actually attempts to buy all of the stocks in the market so that your gains and losses will exactly mirror the success of the overall market.
As long as the stock market is generally gaining in value, as it has been doing lately, buying non-managed index and other non-managed funds is a prudent idea. If the stock market takes a dive, you are probably screwed no matter what funds you own.