Investment funds refer to the collective funds of different investors directed at purchasing securities. In investment funds, every investor whose collective effort makes up the fund retains control over the shares they put into the funds.
From the many online reviews of investors, one can tell that investment funds come in different types and that includes mutual funds, hedge funds, money market funds, and exchange-traded funds. Investment funds, just like every other thing that has to do with finding companies to invest in, has its good and bad side. In this article, we shall be examining some of the long term benefits and risks that are associated with them.
Long Term Benefits of Investment Funds
· It can help you get back on your feet when there is a bump
The marketplace is an unpredictable one and you never can tell when there is going to be a bump. Even the biggest of investors always experience a bump at one point or the other. However, with investment funds in companies like Bondara, you can get back on your feet when there is a bump in the market. Considering that you have control over your share of the collective funds used to purchase the securities, you can decide what you do with the returns that come with. One of your decisions can be to use it to indemnify yourself when there is a bump.
· It helps your money grow through compound returns
The longer your money is being invested in anything, the longer it will grow. Investment funds grow through a mechanism that is known as compound returns. Compound returns work in the same way a snowball rolling down a hill works. It grows in size as it accumulates because every year your returns on the investment fund are being invested again. Compound returns can be a lifesaver if you have a long term strategy for your life, business, or company.
· You don’t have to pay trading fees all the time
Trading fees accompany every activity that involves buying and selling investment. So, for every time that you buy and sell an investment, you have to pay a particular fee. Investment funds help you to avoid this as it makes sure you don’t jump in and out of the market. Also, keep in mind that the more trading fees that you pay, the less returns that you make. By keeping up with an investment for several years, you can save a lot of money on the trading fees that will have been paid if you have to buy and sell instead of re-invest.
· It offers a less emotional approach
The approach many people have to spending and investment is many times more emotional than it is logical. They think of the possible gain that they can get today because of how volatile the market can be while ignoring that time is an advantage when it comes to investing. The longer you stay invested, the safer your funds and your future are.
Risks of Investment Funds
Just like there are long term benefits of investment funds, there are also some risks attached to it and they include:
· Market risk: When it comes to investment, the market is very volatile and there is a possibility of a decline in value because of certain economic activities. Market risk as it involves investment funds takes different forms, and it includes equity risks which affects investments that are made in shares. The market prices of shares are not static, and as such unpredictable. There is also the interest rate risk and currency valuation risk.
· Liquidity risk: Another risk of investment funds is that you cannot get your money when you want to. While it is true that every shareholder has control of their shares, you cannot just make a request for your investment share until the investment cycle is completed. This poses a challenge when there is an urgent emergency that needs immediate funding. It also means that there is a possibility you may not sell your investment at a fair rate when it is eventually gotten.
· Concentration risk: While this risk is very low, it is still a possibility that can be experienced. Many investors of investment funds concentrate their investment in one type of investment. This concentration comes with a lot of risk that gets to the investor when it is a long term investment than when it is a short term investment.
There is the good and bad side to investment. It is your duty as an investor to do the due diligence of thorough research before investing your money. You also have to weigh both sides of the pendulum to brace up for what you get in the long run.