Funds and investment
Investment funds are collective investment vehicles that pool the money of investors and invest it into an investment portfolio that is comprised of bonds, stocks, or other assets. Each fund is managed by a fund manager who decides which assets to purchase and sell and charges a management cost. There are many kinds of investment funds, such as unit trusts (UCITS), OEICs, and open ended investment companies (OEIGCs).
When investing in funds it’s important to consider your reasons for doing so and the length of time you’d like to invest for and your profile as an investor which is a reflection of your willingness to take risks. Younger investors, for example may have more time and are more at ease taking on a greater risk level to maximize growth in the long run.
Diversification is an excellent way to reduce risk, just like saving. This means spreading your investment across a variety of asset classes that have lower correlations between their price movements to ensure that any decline in value of a class can be offset by a gain in another.
Smart beta, also known as low-cost investment is another method to lower risk. These are passively managed funds that attempt to replicate the changes of a specific index of the stock market, such as the FTSE 100, or S&P 500 without the need for judgment.