Investing in funds
The most important things in summary
Funds are a great way to diversify, for those who want to diversify, funds are interesting.
However, the downside of funds is the high fees. There is a front-end load when buying funds, then there are annual fees within the fund, these usually range between 1-2%. In addition, there may be the annual custody fee. These costs eat away at the return.
Don't be blinded by one-off discounts, funds are true fee monsters, consider and check whether there are suitable alternatives, e.g. an ETF custody account, share custody account.
What are funds?
Funds are great securities to spread your risk and buy a carefree solution. A broad diversification is certain with funds and it is certain that one's money is actively managed by a fund manager. Compared to a self-managed portfolio with shares, bonds and other securities, a fund or several funds offer the possibility of spreading one's risk very widely with a low capital investment. A broad diversification means a reduction in the risk of individual securities performing poorly. The more stocks you own, the more likely it is that a few weak stocks will be cushioned by many stocks that perform well. This works the same way with trading in login exness. The big disadvantage of funds is the fees. Funds, here meaning active funds with a fund manager, are real expense monsters. These fees eat up a substantial part of the return year after year. In return, fees have to be paid for this diversification and the active management of the fund, which in turn depress the fund's performance.
Discounts on funds
Discounts on funds are always available only at the time of purchase. The front-end load is the icing on the cake for the distribution of funds and this can easily amount to up to 5% of the invested sum. These fees are often reduced by the distributor, e.g. the direct broker. Here are a few examples of which brokers offer discounts:
Unfortunately, there are no discounts for the ongoing fees in a fund itself, and so the fee monster happily nibbles away at the annual return.
Alternatives to active funds
Two possible alternatives to an expensive active fund are presented here.
ETF Depot
Passive funds get by without a fund manager. ETFs do not aim to beat a benchmark index, but to match it exactly, and so there are fewer fees in the fund itself. This makes ETFs attractive. Here the annual fees are between 0.15 - 0.5 %. In contrast, the fees for active funds are usually between 1.5 and 2.5 %. This difference in fees year after year with compound interest is what makes ETFs so attractive.
Share portfolio
What a fund manager can do, you've been able to do for a long time? Well, not quite, because you probably won't spend hours every day with your securities portfolio and create such a high diversification of your securities as a fund manager can. He also has a different capital at his disposal than we do. However, there is nothing to stop you from setting up your own portfolio and growing with it. The problem at the beginning is that there is a cluster risk with only a few securities and thus there is no diversification, which is the main advantage of a fund. At what point a good diversification begins depends on the respective author. Some think 10 titles, others see the number at 20 titles. A special form of stock portfolio is the focus on strong dividend stocks, a dividend portfolio. Here, the focus is on the regular profit distributions of listed companies. In addition to the buying and selling fees for the shares, there are also fees for the securities account, possibly a clearing account, and usually also for the dividend distributions and possibly also a foreign exchange commission for dividend distributions outside the euro zone, in foreign currencies.