You can aim to do better than that with some actively managed funds, but know that, on average, very few actively managed funds outperform their benchmark indexes over long periods. So which is better for you, active or passive funds? Well, passive broad-market index funds will deliver roughly the market's average return. A classic example is an S&P 500 index fund, which tracks the popular index of about 500 major American companies. A passively managed fund, on the other hand, requires little management brainpower, because it typically just mimics an index, holding most or all of the same securities, in the same proportion. A fund with trained analysts who study lots of securities and decide which ones to buy for their fund and when to sell them is an actively managed one. Another key difference among funds is whether they're active or passive. For example, you might categorize funds by their focus: Some are invested in stocks, some in bonds, some in both, and some in various combinations of asset types. The universe of mutual funds can be divided in different ways.
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