Investing in Funds
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When you invest your money in funds, you deposit them with a company that invests your money for you in various asset classes. You simply hand over the responsibility for your money to professionals who help you invest it to get the best or safest return possible.
Why invest in funds?
- Make your money grow: Funds give you the opportunity for a higher return over time compared to a traditional savings account where inflation otherwise risks eroding the value.
- Spread the risk: Through a single fund, you indirectly own tens or hundreds of different companies. This gives you a built-in airbag – if one company performs poorly, it only affects a fraction of your total savings.
- Convenient: You don't have to read annual reports and analyze individual stocks. The fund manager (or robo-advisor) does the job for you, making it easy to maintain a sound savings strategy.
- Flexible: Whether you want to invest in sustainable energy, global indices, or stable fixed-income securities, there are funds that match your specific risk appetite and interests.
- Long-term savings: Thanks to the compound interest effect, funds are the perfect tool for major future goals like retirement, saving for children, or a dream home.
Investing in funds always involves a risk. Although history shows that the stock market usually goes up over time, funds can both increase and decrease in value – so it is not guaranteed that you will get back the entire invested capital. Therefore, it is important to choose funds with care, keep an eye on the fees, and have an investment horizon that can withstand market fluctuations.
Funds for beginners
All Swedes own funds through their pension savings. In addition to that, it can be a good idea to save additional money in funds. Watch out for funds that charge high management fees (what you pay for the fund to manage and invest your money). A high management fee eats up a large part of your return, so if you are going to invest in funds with high fees, they need to deliver a really good return so that you get value for the extra costs.
Index funds are a good tip because you can find index funds that are completely free of charge. Studies show that a low management fee is often a key to successful fund investments.
For beginners, we strongly recommend a robo-advisor where you entrust your money to Nobel Prize-winning science. For example, read our review of Opti and get our 50% discount code.The following fund types are available to choose from:
In this text, we will briefly go through how the different funds work and how they differ. What they have in common is that they are all companies and that they have fund managers and different teams that manage the various funds and make decisions about which investments to make.
Equity Fund
An equity fund invests your money in stocks. They invest your money in a lot of different companies to try to create the best possible return on your money. Everyone under 50 years old should save their money in various equity funds (and/or index funds). Carnegie Sverigefond is an excellent equity fund managed by the renownedly skilled Simon Blecher. You can sleep well at night knowing that Simon is managing the business and taking care of your money. You can buy this fund at Avanza and Nordnet.
Fixed-Income Fund
A fixed-income fund invests your money in interest-bearing positions. For example, they buy corporate bonds or other so-called fixed-income securities to earn interest on the money.
Short-term fixed-income fund = low risk & low return
Long-term fixed-income fund=higher risk and normally higher return
Those who are 50 years or older and intend to use their money for retirement should have some fixed-income funds in their fund portfolio because these funds are less volatile than equity funds and index funds.
Index Fund
An index fund invests in an index. The fund's goal is to perform in the same way as the index does.
An index is a compilation of a large number of different stocks.
The index shows how all these stocks perform as if all these companies/stocks were combined into a single large company (simply explained).
omxs30 is the Swedish index that shows/compiles the 30 most traded stocks on the Stockholm Stock Exchange. This index is often somewhat incorrectly referred to as the Swedish "stock market". When people say the market is down 2%, it is actually the omxs30 index that has gone down 2%.
Index funds are good long-term investments. You can spread your money across a few different index funds to get good risk diversification. Some really good index funds are Avanza Zero and Nordnet's super funds. These funds charge no management fee, meaning they manage your investments completely for free. This is extremely advantageous. These funds exist to attract new customers to Nordnet.se and Avanza.se. The winner in this is you, the customer, who gets to avoid paying fees.
Balanced Fund
Balanced funds invest in various assets. They simply mix them. Most often, they mix stocks and fixed-income securities. So, they are usually a mix between an equity fund and a fixed-income fund.
Hedge Fund
A hedge fund invests in anything the manager wants to invest in. It can be financial instruments, options, stocks, funds, etc.
The whole idea of a hedge fund is that it should be able to increase in value even if the stock market/index goes down. It is supposed to generate returns regardless of how the markets generally perform. You basically give the fund manager free rein to do good things with your money.
Fund of Funds
These funds invest in other funds. This means you often have to pay double or triple management fees. We think you should avoid these funds unless you have very good reasons to invest in one. Fees eat up a large part of the return over time.
Robo-advisor – fund help on autopilot
If you find it complicated to choose between equity and fixed-income funds yourself, or if you simply don't want to spend time keeping track, then a robo-advisor is a really good alternative. A robo-advisor handles everything for you – from choosing cheap index funds to rebalancing your portfolio when the market fluctuates. It's like having your own manager working around the clock at a very low cost.
How does it work?
When you start saving with a robo-advisor, you will be asked to answer a number of questions about your finances, what you are saving for, and what level of risk you are comfortable with. Based on your answers, the robot automatically creates a portfolio that is tailored for you.
Smart risk diversification: The robot usually invests in a large number of cheap index funds all over the world.
Automatic rebalancing: If the stock market goes up and your equity funds suddenly take up too much space in the portfolio, the robot sells a little and buys fixed-income funds instead. It ensures that you always have exactly the risk level you agreed on from the beginning.
Low fees: As we mentioned earlier, fees are critical to your return. Good robo-advisors find the cheapest funds for you, which means the total cost is often significantly lower than if a banker were to advise you.