This week we’re talking about managed funds – a little 101 explanation for something almost all of us would be invested in.
I say that because that is where the bulk of our superannuation money is invested. So even if you haven’t used a managed fund in your own name before, the chances are your super is invested in either one, or a variety of managed funds.
A managed fund is a great way to get exposure to a diversified range of assets at an affordable price and without having to do all of the research on each individual share yourself.
Let the professionals do it
The way it works is that everyone’s money who has invested in the particular managed fund goes into a big pool and then a fund manager, or probably a team of fund managers, invest the money on our behalf. So they do all the research and select all the shares to buy and sell, essentially managing the fund.
Because buying and selling shares comes with costs, namely brokerage fees, it can be quite expensive and time consuming to do this yourself, especially when starting out.
This being said many investors with very large portfolios will still choose to invest in managed funds because they prefer the ease of letting the professionals choose their investments, rather than having to do this themselves. Most people would prefer to focus on what they’re good at than spend all day watching the stock market.
Now, we’ve been talking about a managed fund comprising of shares, but managed funds exist that invest in almost anything you can think of.
There are funds that invest in Australian commercial property for example, or USA residential property, or Japanese fixed interest (that’s cash type products). Even within the equities sector, there may be managed funds made up purely of shares of infrastructure companies.
Basically each fund would have a theme, or focus, and that way you can choose different funds to make up your portfolio, ensuring you are well diversified. There are also funds that invest across a broad range of assets for us, and these are called diversified funds. There are even funds that invest in other funds, to create a balanced portfolio.
As you can see, it gets a little complicated but hopefully that’s give you a good starting point for understanding managed funds and how they work.