ASK THE FOOL

Active vs. Passive

Q: Can you explain what an “actively managed” mutual fund is?

A: It’s a typical mutual fund, in that it’s managed by professionals who study and select various investments for the fund, aiming for solid returns.

“Passively managed” funds follow an index or a specified part of the market; each aims to mirror the performance of that index or market subset by holding the same securities in the same proportion. An index fund based on the S&P 500 will hold the 500 or so stocks in that index (or a representative subset). Index funds are passively managed because there isn’t much thinking or deciding for their managers to do.

Interestingly, most actively managed stock funds underperform their benchmark indexes. That’s partly due to cost, as index funds are far less expensive to operate — and they tend to have much lower fees, too. Most of us would do well to have at least some, if not most, of our long-term money in index funds.

You can research funds at Morningstar.com.

Q: Why do stocks sometimes start trading in the morning at a much higher or lower price than they closed at the day before?

A: There was probably a development overnight that caused buy or sell orders to pile up all night.

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If Scruffy’s Chicken Shack (ticker: BUKBUK) closes at $75 on Wednesday but opens on Thursday morning at $66, it might have posted a disappointing quarterly earnings report, announced the departure of its CEO or been named in a big lawsuit or an investigation by regulators.

If BUKBUK opens trading much higher, it might have announced some good news — or perhaps it’s being acquired at a premium price.

MY INVESTMENT

Marriage motivation

Dear Fool: My smartest investment has been my marriage. I would not be where I am today if it weren’t for my wife. She’s successful herself, as a lawyer, and from the moment we started dating, I knew that I wanted to better myself for her.

Before I met my wife, I was happy enough coasting along, taking the easiest and least risky options in life. I re-entered the education system and got a master’s degree in finance, then got a job as an investment analyst. I am now earning more money than I ever have, and I have the biggest investment portfolio that I’ve ever had — with the highest annualized returns, too, thanks to having more confidence and more skill.

The Fool responds: You’re onto something there. Investing is more than just stocks and bonds. It’s also vital to invest in ourselves, to improve our personal and financial condition. Marrying well can be a powerful boon.

Warren Buffett agrees. He once said: “Marry the right person. I’m serious about that. It will make more difference in your life. It will change your aspirations, all kinds of things.” His business partner Charlie Munger added that to get a good spouse, one should “deserve a good spouse.”

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Meanwhile, a study from Carnegie Mellon found that those with supportive spouses are more likely to challenge themselves and do well.

THE MOTLEY FOOL TAKE

Flipping for Zillow

There is more to Zillow Group (Nasdaq: ZG) (Nasdaq: Z) these days than just its comprehensive real-estate listings and its “Zestimates” feature that provides rough property values.

The lion’s share of Zillow’s growth is coming from its home-flipping business, as its flagship online business has slowed to single-digit revenue growth.

Zillow is buying and selling properties through its Zillow Offers program, aided by Zillow Home Loans. In the process, it’s giving homeowners and home shoppers shortened real-estate transactions and a massively simplified experience.

Shepherding that ramp-up is Zillow co-founder Rich Barton, who returned to the helm as CEO a few months ago. At the time, Zillow teased that within the next three to five years, it would be purchasing 5,000 homes per month, resulting in annualized segment revenue of $20 billion.

For perspective, last quarter, Zillow bought 898 houses and sold 414, generating over $128 million in revenue in the process. (On average, it paid $281,906 per home.)

Zillow’s online brands include its namesake site and apps along with Trulia, New York City sites StreetEasy and Naked Apartments, apartment and rental search site HotPads and RealEstate.com.

As Zillow’s story continues to unfold, investors who buy today could enjoy outsized gains for years to come. (The Motley Fool owns shares of and has recommended Zillow Group.)