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What can I do with my money? |
Funds
There are 3 types of funds that I will be discussing:
What is a mutual fund?
A mutual fund (or simply fund), is a financial product that uses money provided by investors i.e. yourself to invest in a basket of companies. A single fund can be made up of shares in companies such as Amazon, Tesco, Netflix, Samsung etc. Owning shares in a fund does not imply that you own shares in these companies. When you invest in a fund, you own shares of the fund. Those shares can be traded on the stock exchange.
These funds are typically managed by a financial professional also called an Asset Manager. The benefit of these types of products is that you don't have to create your own portfolio by picking single stocks. These funds are typically well balanced because small investments are made into its underlying holdings which can consist of companies, bonds, cash etc.
Diversification
Funds can be technology focused, regionally focused, country focused etc. If one company within the fund has a bad day, the overall fund can still do well and that will have a minimal impact in your investment. In my Stocks and Shares ISA, the best and worst performing fund has provided me with a return of 60.64% and 31.31% respectively on my investment. These returns are always subject to fluctuations. I intend to hold my fund shares for a long time. So, I will continue to monitor the performance of the negative return funds, wait for their performance to improve, and if there is no improvement over my desired period, I can sell at a loss with the view that other investments in my portfolio still cumulatively provide a strong positive return.
Costs and Charges
Since each fund is managed by a professional, there are costs and charges associated with investing into a fund. It is crucial to keep an eye on the charges that you are paying as this can make a significant difference to your investment. The rule of thumb is to keep charges at less than 1%. Read about ETFs to see how you can get charges close to 0.1% or lower.
Where can I buy Funds
You can explore the following brokerage platforms for stocks, shares and funds
- Mutual fund: I want to be an active investor
- Robo Investment fund: I want hassle free investing
- Exchange Traded Funds (ETFs): I want very low cost investments funds
What is a mutual fund?
A mutual fund (or simply fund), is a financial product that uses money provided by investors i.e. yourself to invest in a basket of companies. A single fund can be made up of shares in companies such as Amazon, Tesco, Netflix, Samsung etc. Owning shares in a fund does not imply that you own shares in these companies. When you invest in a fund, you own shares of the fund. Those shares can be traded on the stock exchange.
These funds are typically managed by a financial professional also called an Asset Manager. The benefit of these types of products is that you don't have to create your own portfolio by picking single stocks. These funds are typically well balanced because small investments are made into its underlying holdings which can consist of companies, bonds, cash etc.
Diversification
Funds can be technology focused, regionally focused, country focused etc. If one company within the fund has a bad day, the overall fund can still do well and that will have a minimal impact in your investment. In my Stocks and Shares ISA, the best and worst performing fund has provided me with a return of 60.64% and 31.31% respectively on my investment. These returns are always subject to fluctuations. I intend to hold my fund shares for a long time. So, I will continue to monitor the performance of the negative return funds, wait for their performance to improve, and if there is no improvement over my desired period, I can sell at a loss with the view that other investments in my portfolio still cumulatively provide a strong positive return.
Costs and Charges
Since each fund is managed by a professional, there are costs and charges associated with investing into a fund. It is crucial to keep an eye on the charges that you are paying as this can make a significant difference to your investment. The rule of thumb is to keep charges at less than 1%. Read about ETFs to see how you can get charges close to 0.1% or lower.
Where can I buy Funds
You can explore the following brokerage platforms for stocks, shares and funds
What does a fund look like?
Click here or use the slide show below to examine a typical fund listed on a brokerage account. Let's break the down basics.
- Slide 1: The fund name is UBS US Equity and the current buy and sell price of the fund is 131.15p = £1.3115.
- Slide 2:
- The UBS US equity account is a fund that is managed by Tom D.
- The value of this fund as of September 26, 2018 is $219 million.
- This fund has shares in 68 US firms and currently holds 4.32% or £9.4million of its £219million in Amazon, 3.4% in Facebook and more (slide 3).
- This costs/charges of this fund is deducted from the income. The income is the gain that you make on your investment. So if the fund share value goes up by 2% in a given year, your income is 2%.
- When your charges is deducted from income, it means that your capital investment (the total price you paid for the shares) remains untouched and charges are taken from the income. So if there is no gain on your investment, you will not pay any charges. My view: Avoid funds that deduct charges from your capital. If you choose this scenario and the value of the fund goes down, you will still pay charges. These charges will come out of your capital investment.
- The annual charge on UBS US Equity is 0.86% of your income. This amount is paid to the fund manager. This is how he makes some of his money.
- The fund is an accumulation fund meaning that any growth is re-invested into the fund to make it grow.
- Slide 6: Over the past 5 years, the value of this fund has been growing steadily.
- A dividend is paid twice a year or bi-annually
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What are my next steps with Funds?
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Disclaimer
The content on WealthSquats are my own thoughts and is not financial advice. Consult certified financial experts to get information that is suitable to you.
The content on WealthSquats are my own thoughts and is not financial advice. Consult certified financial experts to get information that is suitable to you.
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