• Why invest in funds?

    We look at the reasons why you might invest in funds.

    Watch our video to find out why you might invest in funds over investing directly in stocks or shares in a well-known company.

    Investing in shares

    When you’re thinking about investing, the first thing that might come to mind is buying shares in a large, well-known company or business you’ve heard of.

    Its size and reputation can seem reassuring, but what many don’t realise is that this can be quite a high risk strategy as your investment is reliant on how profitable that single company is.

    The value of your shares could plummet overnight if:

    • The company’s sales crash due to the way the company is managed
    • There’s a sharp decline in the market it operates in
    • Scandal strikes the company

    How could I reduce the risk?

    Invest in a number of companies

    You could consider diversifying. This would mean spreading your money across a number of different companies’ shares which could help reduce the amount of risk you’re taking overall, though this could prove costly if you pay a fee for each transaction.

    Invest in funds

    When investing in funds you pay an annual fee for a professional fund manager to invest your money in a range of investments and your money is split through a single transaction.

    The benefit of this is that your investment will be more diversified across shares in a range of different companies. Depending on the fund you choose, it could give you access to shares in a range of industry sectors such as technology, healthcare and energy, as well as markets across the world. This helps spread your risk so that potential losses in one area may be offset by potential gains in another.

    More benefits to investing in funds

    • You have access to markets and companies you may not otherwise be able to invest in
    • Depending on the fund you choose, it can hold a range of assets such as cash, bonds and property e.g. offices and retail developments. You have the option of choosing from funds that hold single or multiple types of asset
    • Funds come with different exposures to risk. For example, funds which invest in Government bonds are generally less risky than those that invest in company shares, and investing in developed countries such as Europe and Japan tend to be less risky than investing in emerging markets such as China and India

    This lets you choose funds to make up a portfolio which suits your attitude to risk and ability to cope with any losses.

    Please remember that the value of investments can go down as well as up and you could get back less than you invest. You should consider investing for 5 years or more.

    Our tools

    We have a number of tools and guides to help you make your own investment decisions:

    Investment risk profiler tool icon

    Risk profiler

    Before investing you need to decide how comfortable you are with investment risk and the level of risk you're willing, and able to take with your own money.

    ISA forecaster tool icon

    ISA forecaster

    By using the ISA forecaster you will get an indication of how much a Stocks and Shares ISA might be worth in the future.

    Explore our funds icon

    Explore our funds

    We'll help you search for funds based on your investment preferences and check the risk of your chosen funds before you invest.