Investment and Funds

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Funds and investment

An investment fund is a collective investment vehicle that pools the cash of investors to invest in an investment portfolio that includes bonds, shares or other assets. Each fund has a fund administrator who decides what to buy and sell and charges a management cost. There are many types of investment funds, such as unit trusts (UCITS), OEICs and open ended investments companies (OEIGCs).

When you invest in funds, it is crucial to think about the reasons you are doing so and also your investment profile, which reflects your risk tolerance, and the length of time you intend to invest. For instance, investors who are younger might have more time or be more willing to take on a higher risk to increase growth in the long run.

Diversification is a great method to reduce your risk, as is saving. Diversification involves spreading your money over different classes of assets that have lower correlations in their price movements. This lets you reduce the value loss in one class of asset by the gain of another asset class.

Smart beta or low-cost investments is another way to reduce risk. These are funds that are managed by passively that attempt to replicate movements of a certain stock market index such as the FTSE 100, or S&P 500 without the need for judgement.