Part 1. What are funds, and how can they benefit your portfolio?

A fund is a professionally managed pool of money which is invested in a range of different equities. By providing an affordable way to invest in shares that could cost thousands of pounds to buy individually, you can essentially buy a pre-built portfolio for a fraction of the price. All of which is managed by an expert of investing in that field. The fund is split into units and their value can fluctuate just like a normal share. You can either purchase income shares – where dividend-like payments go straight to you as cash – or accumulation funds – whereby the income is retained and reinvested, which pushes up the value of any units. The makeup of funds can vary dramatically, from investing in different countries, industries or regions, they can be cross market, emerging market or established market. They’re diversity is broad, and so their risk is mitigated, which is why they have become a staple for many investors.

So, how can you build a fund into your portfolio? For me, I like to place around 40% - 70% of the value of my portfolio within different funds. I vary this amount depending on how hot the stock market is getting, and my own personal needs are at the time. When I was at university, I spent less time investigating stocks as I was busy with my social life and classes. Therefore, the ratio of portfolio capital I put into funds increased as I knew I could get a good steady rate of growth without paying much attention to my portfolio. As I began working full time and could allocate more of my free time to investing, I decreased the ratio of funds to individual shares, as the growth potential is far greater. However, it is worth noting that investing in a fund cannot solve an overinflated or hot market if you invest in that same market. Instead pick one that’s predominately vested in a different market. As the fund, you buy into is not a separate entity, it is still just a bundle of shares.

Whether you’re looking to begin investing, want an easy access way to a full portfolio, or you’re looking to spread your risk in this time of uncertainty, there is a fund for you. In part two of this article, I will break down the different types of funds in detail, what they do and what some of the complicated jargon means. But, for now, I have listed a couple of my favourite funds, just to give you a head start.

Artemis High Income – Class I – Monthly Income (GBP). – This fund has an annual growth rate of anywhere from 1% to 11% annually. There are many other funds that will provide a lot more growth, however this one pays monthly dividends. Perfect for topping up your monthly pay packet.

Fundsmith Equity – Class I – Accumulation (GBP). – One of the growth heavyweights, and a fund I can personally pay tribute to for excellent results. This fund can easily hit growth rates of 30% as an accumulation fund and has grown by a minimum 19.26%, 4 times in the past 5 years. The fund is mainly committed to big American corporations by the likes of Microsoft, PepsiCo and Paypal, but also has spread through mainland Europe.

Legal & General US Index - Class C – Accumulation (GBP) – This North American tracker fund is vested in blue chip stocks, with the intention of mimicking the makeup of the NASDAQ. The fund is a great example of how you can diversify your portfolio in to different countries or markets on a budget. Some of the stocks within this fund such as Amazon, Apple or Netflix, would cost your hundreds of pounds alone. The fund itself has grown for the past 4 years, with a staggering 46.05% between 2016 and 2017.

Disclaimer: When investing in equity markets your capital is at risk. All content posted on stockpickers.co.uk is opinion and not intended to be instructional. The site cannot be held responsible for any losses upon the following of the opinions expressed. 

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