A beginner's guide to funds
5 main things to know
- Investment funds are a pooled collection of investments.
- They are typically grouped by type (eg shares), region (eg UK) or sector (eg technology).
- They were invented to give investors access to a diverse mix of assets through one single scheme.
- Investors will pay the fund manager to choose, manage and maintain the mix of investments.
- This fee is usually known as the OCF or Ongoing Charge Figure and can range from about 0.2% a year to over 1% a year depending on what is in the fund.
When less isn’t more
When it comes to investing, many people get their fingers burned by picking one share. Or one asset. It could be a tip from a friend. Bitcoin. Netflix. Zara. A brand that ‘is going gangbusters’.
The trouble with this approach is that it’s hugely risky. You really are putting all your eggs into one basket. If that one company has a bad time or goes under, you are entirely exposed to its fortunes. We tend to stick with the familiar and so many investors are very heavily UK-focussed. We’re influenced by media hype and the latest ‘rags to riches’ story. We will tend to look at retail consumer brands we know. And so we miss out on the fuller range of global investment opportunities.
Funds are a great way to make sure that we adopt possibly the most important rule of successful investing – diversification. (Remember although diversification is an important rule, it doesn’t guarantee returns on your investment.)
Managing a broad pool of investments
Diversification sounds easy enough but in practice, trying to manage this ourselves requires time and skill that not many people have. What is the outlook for the US compared to Asia? Are tech stocks overvalued? At what stage in the property cycle are we? Once we’ve formed a view on a whole list of economic indicators, we then need to work out which investments to buy as a result. It’s not quick or easy.
In our view, if you don’t have the appetite or experience to tackle these questions then a multi-asset fund could be the answer for you. These are like the ‘ready meals’ of investing. Our investment experts put together a collection of blended investments which come from lots of different countries and sectors. So with one investment decision, you get access to a diverse global portfolio.
To provide a bit of flavour, the 3 multi-asset funds available through MyInvestments offer access to all major global markets including the UK, the US, Asia and Europe. They hold shares in companies such as Apple and HSBC. The three funds each have hundreds of individual investments in them. Lots of eggs and lots of baskets!
We believe anyone who is considering investing but lacks time, confidence or access to a couple of research analysts (!) is usually well advised to at least consider the benefits of investing via a fund.
We don’t offer personal financial advice at MyInvestments, but if you do need to speak to a financial adviser, you can find one at www.unbiased.co.uk