In this series of blog posts we will be breaking down both the basics and the complexities of investments.
If your new to this blog series make sure you check out Part 1 and 2 ofA guide to investing:
Now time for….
How to hold investments (Part 1)
Diversifying your investments can be a vital aspect to investment success. The more you diversify across asset classes, geographic regions and business areas, the more your overall investment range will be able to withstand any hits to an individual investment.
Investing directly in bonds, shares or/and property as an individual is very expensive when diversifying you investments due to transaction costs. Also, it is hard to keep track of a number of asset classes buy and sell times.
Why you want funds
Funds can help prevent problems associated with direct investments as they invest in a range of investments and are run by professional fund managers.
Investors’ money are pooled together making it possible to access and reach investments that they wouldn’t ordinarily be able to do on an individual basis.
Another perk to funds is that there is day-to-day decision for you to make. Fund managers do all the work and can use their expert knowledge and experience to make potentially wiser decisions than someone who is not fully educated in the area.
There are 3 different types of fund management
1. Actively managed
· Have a fund manager whose job is to select investments that best match fund’s objective.
· Suitable for an investor who is looking to make potentially higher returns than a fund that tacks an index.
· Generally charges more other fund types
2. Passively managed funds
· Aim to mirror or track a particular benchmark
· Have a fund manager, however the underlying investments are selected automatically
· Generally charges a lower amount than active funds
3. Funds of funds
· Fund manager invests in a selection of funds
· Provides greater diversification
· A fund of fund can be a mix of active and passive funds