Stock saving, buffer saving, or just saving. Interest in saving and investing is increasing and there is more and more talk about it online, on the TV couch and at home.
You often hear that saving is something “everyone should do”, but it is not always the easiest thing to know how to start.
Here you get help to kickstart your savings so that you get started – once and for all. And what is the difference between saving and investing? The term “save” is often used to describe the same thing – that is, to save money that you want to grow.
For some, it is a matter of transferring a penny each month to a bank account. For others, the thoughts go to equity savings or funds.
So, how do you invest in a mutual fund?
You save in funds by buying fund units. You can make one-time purchases or you can start a regular savings, a monthly savings, where a certain amount is deducted from your account each month. It is easy to change the amount if you want to save more or less money a month.
What is a fund?
A fund is a collection of securities, such as shares or bonds, that you own together with everyone else who saves in the fund.
The fund is managed by a fund manager, one or more people who decide which securities the fund should invest in and try to get it to develop as well as possible so that your savings increase in value.
What are the different fund types?
There are several different types of funds. Below you can read about the different fund types that you can find:
1. Stock fund
Equity funds normally provide the greatest opportunity for high returns in the long term. But investing in an equity fund also means higher risk, as prices fluctuate more sharply in the stock market than in the fixed income market.
The equity funds have different investment orientations. Some are wide and place all over the world.
Others invest only in a specific region or industry. It is the fund’s investment focus that largely determines the risk that fund has.
2. Industry funds
An industry fund invests in corporate shares in one or more specific industries, such as biotechnology, real estate or IT.
As a fund saver, you can choose an industry that you believe in and then leave it to the fund manager to choose which shares are to be included in the fund.
A global industry fund has a lower risk than a regional industry fund, but industry funds are generally classified as high-risk funds.
3. Regional funds
A regional fund invests in corporate shares from a specific continent, a specific region or a specific country. The tighter the regional restriction, the greater the risk – and vice versa.
The development in the fund depends on the economic development in the region.
Regional funds are suitable for you who believe in strong growth in a certain continent, country or region. The risk is higher than in a global equity fund.
4. Fixed income funds
Fixed income funds are suitable for you who want to avoid the sharp price fluctuations that can occur in equity funds.
Short-term fixed-income funds have the lowest risk of all types of funds, and invest in fixed-income securities with an average maturity of up to one year.
Long-term fixed income funds, also called bond funds, are suitable for you who want long-term fixed income savings. The value may fall if market interest rates rise, but the fluctuations are not as great as in equity funds.
Corporate bond funds invest in bonds issued by companies. The funds may have different orientations and the differences in risk and return may be large depending on whether the fund invests in bonds issued by large stable companies (investment grade) or small and uncertain companies (high yield).
Corporate bond funds have a higher risk than ordinary bond funds, but generally a lower risk than equity funds.
5. Mixed funds
Mixed funds combine the security of interest savings and equity savings’s opportunity for good returns.
Mixed funds invest in both equities and fixed income securities.
In the long run, a mixed fund normally gives a higher return than a fixed income fund but lower than an equity fund.
Fund-of-funds is the name of funds where managers invest in other funds instead of in individual securities. A fund-of-fund can invest both in the fund company’s own funds and in other fund companies’ funds.
7. Hedge funds
The goal for all hedge funds is to protect capital from impairment by creating a positive return independent of general market developments.
A characteristic of hedge funds is that they do not follow developments in the stock market or the fixed income market.
Instead, they have a development that to a lesser extent depends on how the financial markets otherwise move. Therefore, they can be a good complement to a traditional fund portfolio.
Hedge funds come in many different forms and with different risk levels. A hedge fund-in-fund significantly reduces risk by investing in several different funds with different orientations and from different managers.
8. Sustainability Fund
“A sustainability fund invests in companies that manage social, ethical and environmental risks in a responsible manner.
Ethical assessments are usually combined with traditional financial analysis in the choice of investment. The funds can opt out of companies that invest in controversial industries but also actively select companies from a sustainability perspective.
The UN Declaration of Human Rights, the UN Global Compact and the ILO’s core conventions are important values in a sustainability fund.
In the funds’ information brochure, you will get more information on how sustainability is integrated.
9. Actively managed funds
Active management means that a manager makes active decisions to buy, sell or keep a security depending on a number of different factors that are analyzed and valued.
Unlike a passive fund (index fund) that only follows a benchmark index, an actively managed fund takes into account the valuation of the business cycle, different markets or perceptions of the future opportunities and development of different companies or securities.
In active management, the manager strives for a return that exceeds the average return in the markets where the funds have their investments, ie a return that is higher than the fund’s benchmark index.
Active management is no guarantee that the fund will exceed the fund’s benchmark index or generate a higher return than the corresponding index fund.
The fund’s value development may be better or worse than the development in the fund’s benchmark index.
Active management requires more resources and therefore the price of an actively managed fund is often higher than for a passively managed fund.
10. Passively managed funds
A passive fund (index fund) is managed in order to mimic the composition of a certain index. The managers therefore strive for the fund’s total holdings (portfolio) to deviate as little as possible from the benchmark index.
This is usually called passive management because the fund consciously tries to mimic its benchmark index, unlike active management where the managers make active decisions to buy, sell or keep a security depending on various factors that the managers value.
In a passively managed fund, no analysis is made of the various securities, markets or the business cycle.
With the exception of the price, the development of a passively managed fund must be very similar to the development of the index that the fund follows.
The price for a passively managed fund is usually lower than for an actively managed fund, as it almost always requires less resources.
3 things to keep in mind when choosing a fund:
- What is your goal with your savings and how far away is that goal?
- How much risk are you willing to take in your fund savings?
- Do you want to save comfortably or do you want to be an active fund saver?
Choose saving time
- How far is it to your savings goal? 1 year, 5 years, 8 years – or even longer? The answer determines the type of fund you should choose.
- If you intend to save for a shorter period, 1-2 years, saving in fixed income funds is preferable. The risk is relatively low that your saved capital will decrease in value.
- If you want to save for 3-5 years, you can choose a mixed fund with shares in both fixed income and equity funds.
- If your savings target is further away, however, saving in equity funds is preferable. The risk is higher, but at the same time you get a chance for a higher return. But the most important thing is that it feels good just for you.
- If you are considering starting to save for retirement, we have tailor-made pension funds for you. Were you born in the 60s, 70s, 80s or 90s? Choose a fund easily and conveniently depending on which decade you were born.
Choose the right level of risk
By risk I mean both the possibility that your savings increase in value (what we call returns) but also the risk of losing the return or in the worst case part of your savings.
Therefore, it is important to choose a risk level that feels right for you.
- Choose low risk if it is more important to you that your savings do not decrease in value than that you get a higher return. Fixed income funds are then preferable.
- Intermediate risk suits you who want balance – the opportunity for a higher return but with a limited risk that your savings will decrease in value. Mixed funds can then fit well. It is a combination of fixed income and equity funds.
- If, on the other hand, you want to save in the long term, you may be able to afford to take a higher risk. While you are saving, the stock market will fluctuate several times, but you have time to wait for an upturn. Equity funds are the best option for you who want the chance for the highest possible return and at the same time are willing to take risk.
What does it cost to save in mutual funds?
The fund company that manages the fund charges a fee called a management fee. For an equity fund, the management fee is usually between 1.0 – 2.5 percent per year, but the fee is charged every day in 1/36 part.
This means that a fund with a management fee of 1.5 per cent per year charges a fee of 0.004 per cent per day before the fund company calculates the fund’s development for that day.
This means that all fees are taken from the fund when the development is reported. If a fund is said to have increased by 8 percent in a given year, it is after all fees have been taken out of the fund.
FAQ – Mutual Funds
1. Why save in mutual funds?
Saving in mutual funds is a very good way to get a return on your money. It is simple and does not require much time compared to other forms of placement.
2. What do you do if you want to invest in funds?
The easiest way is to start an investment savings account or Roth IRA with a bank. Then you transfer money to your account and start investing.
It is also smart to set up an automatic transfer every month from your payroll account to your Roth IRA account.
3. How does a fund work?
A fund is managed by a fund company where a responsible manager buys and sells securities in order to get a return on the money in the fund.
The money comes from savers who want the fund to manage it for them.
4. When to buy and sell funds?
Of course, it is best to buy funds when they are cheap and sell them when they are expensive. In practice, it is impossible to succeed.
Therefore, it is a good idea to only invest money that you can be without and have them in funds over a long period of time without touching them.
Saving monthly and constantly buying new fund units is a good way to successful fund saving.
Just keep going at the same pace
Regardless of what you have chosen for saving, what time horizon you have and what you invest in, it can be good to review your savings from time to time – just to see that everything goes as you want.
After all, it’s your money it’s about.
Usually it’s very scattered how often we check, some are in a couple of times every day while others go in sometime in the half year.
Here you get to feel a little yourself on how committed you want to be, if you have a monthly savings in funds and will save for ten years, you may want to sit back, while if you have invested in a couple of shares, you may be interested in seeing over the development from time to time.
There is no obvious way to start saving, but hopefully you feel that you have some meat on your bones to start saving now.