In this week's millennial money episode, Damien and I tackle jargon terms for beginner investors. This week we discuss what is a fund?
What is a fund?
In previous episodes, we have talked about how you can buy a share in a company, explaining how it is effectively buying a stake in a company. It can be a fairly high-risk strategy as you are putting all of your money in one place. An alternative to this (and a less risky method) is buying multiple shares in multiple companies however this is a high cost and time-consuming method thanks to the research you'll need to carry out and the fees you pay for buying each share. An alternative is to invest in funds, where you can invest your money in multiple companies from one place - the fund.
How does a fund work?
An asset manager in a fund house is called a fund manager. They are responsible for managing the fund and picking where the money within the fund is invested. For example, if you have chosen a fund that invests in UK companies, the fund manager will select the best companies to invest in, based on their own research and experience
By investing in a fund (along with potentially millions of other people) even a small amount of money can grow significantly as it benefits from the economies of scale and the diversification of the fund. A fund allows you to buy stocks and diversify the investments for a fraction of the price compared to buying the shares individually.
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