Applying in stock funds is a task that requires a lot of research and monitoring on the part of the investor, since these investments vary a lot. There are riskier funds, but with higher rates of return, and there are also safer funds, with lower rates of return. In this scenario, it is up to the investor to check which stock funds best suit their profile and take action. But you don’t even know where to start? Because it was with this in mind that we decided to separate, in this post, some basic and fundamental tips and information on how to invest in stock funds. So check it out before making any decision:
How are equity funds organized?
Equity funds can be a good investment option for those people who are starting to allocate part of their money to publicly traded stocks. It basically works like this: a financial institution or securities brokerage organizes a set of investors to invest their money in a variety of stocks.
This diversification of a fund’s asset allocation follows certain rules, which aim to reduce the risk of loss, but also to define the fund’s investments — more conservative, more daring, and so on. Most of these funds should be invested in stocks, while the rest can be invested in government bonds and cash, especially when there is little confidence in the way the stock market is going.
What are the advantages of investing in equity funds?
There are some advantages related to these forms of investment, such as income tax with simplified payment and collection, unlike what happens with shares traded directly on the stock exchange, for example. The tax bands are also inversely proportional to the investment period, so the longer the money is invested, the lower the tax. In addition, investors rely on the help of specialized professionals to define which fund profile best suits their characteristics.
Are there more conservative options?
As each fund has its own characteristics, its administrators are the most qualified people to inform investors about this profile. But there are, yes, more conservative funds, which seek to reduce market volatility through investments in shares of the most established companies in the market, which follow the rise of stock exchange indices and do not show so many fluctuations in times of crisis, such as index funds and dividend funds.
Are riskier equity funds more profitable?
If the investor has a greater tolerance for risk, he may decide to allocate his investments in riskier equity funds, which usually have higher yields. This is the case of actively managed funds, which seek to outperform indices, of free stock funds, which are freely chosen by the manager, without concern for indices, and of small caps stock funds, which prioritize investments in smaller companies. Funds like these tend to charge higher management and performance fees — 2% and 20%, respectively, in most cases. On the other hand, charging a performance fee can be a good indication that fund managers will really seek the best results for their investments.
And what are the disadvantages of investing in equity funds?
It is worth noting that, regardless of the fund’s rating, its performance is unpredictable. Depending on market fluctuations and the skill of fund managers, it is possible to incur losses and frustrate your expectations of yield. Every stock fund has investments in securities of companies that are not very profitable. As the nature of the fund is precisely to buy the complete package, there is no way to exclude certain stocks from your investments.
Equity funds are the ideal option for investors who prefer not to monitor market performance on a daily basis, preferring to leave this activity in the hands of the fund manager.
Now that you know the basics, comment here and let us know if you think equity funds are a good investment option for you! At first, would you invest in a more conservative or riskier fund? Share your impressions with us!
Our Consulting: John Labunski Dallas