The easiest way to harness your savings to the stock market is through investing in a fund which pools your money with that of many thousands of other people. Investment funds are commercially run organizations, often owned by banks or insurance companies, which buy shares in bulk, collect the dividends on your behalf and keep track of your slice of ownership.
There are hundreds of different types, most using expensive City professionals to choose shares to buy and sell. Some called 'trackers' use a computer to mimic a particular index or benchmark such as the FTSE100 index of leading UK shares.
They do this by holding the same numbers of each share as the index they are tracking. Trackers are mostly the cheapest form of fund investment.
At one level, funds make investing simple. You do not have to even think about the complexities of investing, reading annual reports or understanding the jargon of companies and profits. That is the fund manager's job. Likewise, you are automatically protected against significant damage from bankruptcy or collapse of an individual firm, because every fund spreads its money over a fairly large number of different investments.
[...] Types of funds Stock funds Value funds Value fund managers look for stocks that they think are cheap on the basis of earnings power (which means they often have low price/earnings ratios) or the value of their underlying assets (which means they often have relatively low price/book ratios). Large cap value managers typically look for big battered behemoths whose shares are selling at discounted prices. Often these managers have to hang on for a long time before their picks pan out. [...]
[...] Likewise, you are automatically protected against significant damage from bankruptcy or collapse of an individual firm, because every fund spreads its money over a fairly large number of different investments. However, that does not mean that all funds are equal. There is a huge difference in what they set out to achieve, and some large differences in the way they are structured. Most funds fall into two types: Open-ended investments companies (which are what used to be known as unit trusts), and investment trusts. [...]
[...] Generally speaking, this represents the market's estimate of the "value" of the company; however, it should be noted that while this is the common conception of market capitalization, to calculate the total market value of a company, you actually need to add the market value of any of the company's publicly traded bonds. Small Cap The term small cap refers to stocks with a small market capitalization, between US$250 million and billion. Small-cap stocks can trade on any exchange although a majority of them are found on the Nasdaq or the OTCBJ3 because of more lenient listing requirements. [...]
[...] Fund Manager A highly trained investment professional with a vast amount of investment experience with good performance and exceptional formal education, the fund manager's main responsibilities include investing the assets of a mutual, pension, trust, or hedge fund, Equity Equity is a term whose meaning depends very much on the context. An equity fund typically will not invest in any bunds or notes. The invested funds will either be in cash or stock. In general, we can think of equity as ownership in any asset after all debts associated with that asset are paid off. [...]
[...] If you cannot tolerate swings of more than a few percentage points, stick to short-term government bond funds. If fluctuations of five percent or so do not cause you to break out in a cold sweat, then you can pick up a bit more yield with intermediate government bond funds. If you plan on holding on for several years and can handle 10 percent swings, long-term government bond funds will provide even more yield. Corporate bond funds Funds in this category buy the bonds issued by corporations that may range from well-known household names to obscure widget makers most of us have never heard of. [...]
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