<prompt> Human: Im really sorry if something like this gets asked a lot. Ive done some research but I dont really understand what they are. Can someone here explain it to me? Im going to move out later this year with a friend while working full time and go to college in a couple of years to become a high school science teacher, so I wont ever be rolling in money. Should I still get a mutual fund? What are some ones?  <response>: TL;DR Buy Vanguard Target Retirement funds.A mutual fund is an investment vehicle which lets investors pool their assets when buying securities. The word securities is just a fancy name for stocks, bonds, and anything else you can trade on a financial market.For small investors, one of the main benefits of mutual funds is that you can achieve greater diversification than you would otherwise.For example, suppose that Alice, Bob, and Charlie each have 20, and want to buy a share of Companies X, Y, and Z. A share of each company, conveniently, costs 20. One approach would be for each investor to pick one company and buy a share. But that means, if something bad happens to the company, then the investor might lose a lot of money.So instead, the three of them put their money in a joint account, and from the account, buy one share of each company. Now, each one owns 13 of a share in each company, which wouldnt be possible without the joint account. Even if one company goes bankrupt, the most any investor will lose is 13.Thats basically how mutual funds work. Instead of 3 investors with 60, many of the biggest ones have millions of investors and billions of dollars in assets. But the basic idea is the same.Its useful to categorize mutual funds in a few ways. Here are some of the important ones:- Asset allocation: This refers to the type of securities owned by the fund. For example, some funds own stocks, while others own bonds. You can get into very fine-grained categories here; there are funds which only own healthcare-related stocks, or stocks which pay a lot of dividends, or stocks in companies which are socially or environmentally responsible.- Management strategy: Some funds are actively-managed, which means that a professional fund manager decides what securities to buy, sell, and hold. Other funds are passively-managed, which means that the fund has a formula for what its holdings should be, and a fund administrator simply buys and sells according to the formula. Virtually all passively-managed funds base their formula on an index, such as the SP 500, or are funds of funds where the funds being held are based on an index. Therefore, passively-managed funds are often called index funds.- Fees: There are a huge range of fees that mutual funds may charge. Every fund has annual operating expenses; the total of all these expenses is called the expense ratio. For example, if a fund has a 1 expense ratio, then each year, 1 of the funds assets will be sold to cover expenses including paying the fund manager. There are also fees when you buy front-end loads, fees when you sell back-end loads, fees for selling too soon after buying, and fees for having a small account balance.- Minimum investment: Most funds have a minimum investment, as a way of cutting costs. Many funds offer multiple share classes, such that if you have a larger amount of money, you can opt for a better share class with lower costs. For funds aimed at personal investors, minimum investments are generally in the range of 1,000 to 100,000, depending on the type of fund and the share class.Its often said that past performance is not a predictor of future results. However, past fees are a great predictor of future fees, and so many people myself included recommend that you try to pay the lowest fees possible. The cheapest mutual funds are passively-managed index funds that charge no loads, have a very small expense ratio, and no other fees. For example, the Vanguard Total Stock Market Index fund VTSMX has an expense ratio of 0.18, and no other fees.If you dont know what to buy, the Vanguard Target Retirement 20XX funds are a great place to start. These all-in-one funds are designed to provide a good asset allocation for people who will be retiring around the chosen year, with a very low minimum investment 1,000 and very low expenses around 0.20, and no other fees. These are not just starter funds; many experienced investors will keep all of their retirement assets in such a fund, because theyre a great value and so easy to use. 