Instant Diversity
We already covered the importance of diversity back in the last section. But basically, an on-the-ball investor will reduce risk by dealing with the unpredictability of the future. Don't worry, though, this won't require a Tardis, just one small rule: You help to reduce risk through diversification.
The sensible way to diversify a portfolio is by investing in different countries, different types and sizes of companies, and certainly in different asset classes (such as bonds or equities).
Well, funds are an extrememly easy way to achieve this, and here's why:
If you buy and hold shares directly you'll probably only have a handful of investments on the go at any one time. In other words, you're dependent on just a few companies.
Funds let you invest in a wide range of organisations - sometimes hundreds of different stocks at a time. Tracker funds are particularly useful for achieving instant diversity. They aim to replicate the performance of a particular index, thus spreading both your risk and opportunity a whole lot wider.
Expertise of the Fund Manager
Fund Managers get paid for a reason; they (should) know what they're talking about.
When you buy a fund you also buy into the Fund Manager's expert knowledge. And he's not alone. Behind him there'll be a load of researchers and a ton of analysts to help you get the best return on your money. Oh, and when we say research, we're not lying; investment folk will make hundreds of special visits to companies each year to help assess their prospects.
So we reckon it would be daft not to use all that expertise to access the financial markets.
Ease and Flexibility
Funds are easy to buy, sell and transfer. You can wrap them up in a tax-free ISA and best of all you can do all of it online with many companies.
Access to Lots of Different Markets
Back in the last section we told you it might be worth diversifying your portfolio by investing in a whole lot of markets. If that's your goal, funds will prove really useful.
For example, you might start off thinking, "Hmmm, I want to invest in Far Eastern markets – but where to start? Which companies to pick? And where do I get all the info I need?"
In this exmple you might want to consider a Far Eastern fund. It will probably be run by regional experts who know the market inside out and are often based in the area they're investing in.
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