Ready-made baskets of investments managed for you by an expert. A great way to avoid making a clanger by choosing one duff share.
4 things you need to know
A fund is like a basket of about 30-60 different investments which hedges your bets
These are managed for you by a fund manager who typically charges about 0.75% every year to do this
They spread the risk around and are a much safer bet that simply buying one or two shares
You can buy them in a Stocks & Shares ISA to keep the profits tax-free
What are they?
Funds are an easy way to get a collection of investments picked and managed for you by a fund manager. If you're not the investment equivalent of a MasterChef finalist, these are your easy ready-meal option.
There are thousands to choose from – here's the key things to work out.
1. Do you want bonds, property or shares? Or maybe you literally just want one fund which is a blend of all of these – this is called a 'multi-asset fund' and is the easiest way to get going.
2. How long are you investing for? Generally the longer your timeframes, the more you will have in shares. Bonds typically make less. But bounce about less so you're less likely to be underwater if you've only got a few years to play with.
3. Do you want to invest for income or for growth? Some UK Equity Income funds pay out around 3%-4% a year. Popular with people in retirement.
3. Try and invest in different markets around the world – avoid the temptation just to stick with the UK 'cos it's familiar. Eggs in one basket and all that.
4. How spicy? No pain no gain. But of course there's risk too. Emerging Markets are the Vindaloo. Can be painful but also more likely to explode upwards. UK shares are the Madras. Spicy but not too extreme. Bonds are the Korma. Easier on the stomach but you wont get the same kicks. Cash is like a slice of white bread!
5. Which approach do you want? 'Active' or 'passive'?
Many online investment providers have fund shortlists today which can help to sort the wheat from the chaff. Or if this is all far too much, have a look at a 'robo adviser' for help.
Just tell me who's any good!?!?
Loads of you just want us to tell you which 5 funds are 'the best'. As irritating as you find it, we can't make this call without knowing what you need your investments to do for you.
What we can do is point you to some big brand names who we think do a good job.
Vanguard – their multi-asset funds called LifeStrategy are low cost passive funds and do a good job of spreading your investments around.
UK equity income funds
Research houses rate Artemis Income and Woodford Equity Income consistently well.
Lindsell Train Global Equity, Artemis Global Income, First State Global Listed Infrastructure, and Fidelity Global Dividend top the professional fund selectors' lists for global funds.
Fidelity Strategic Bond, Henderson Strategic Bond and Invesco Perpetual Corporate Bond are all rated highly by platforms.
Guide to Funds
Still got questions?
This four-page guide has the low down on active and passive, bonds, shares and property, helping you to understand funds and start building your own.
Download the guide
What you'll need to decide
These are the five main questions you need to answer when choosing a fund which is right for you.
What on earth is a 'passive' fund!?
These mellow fellows can be a great way for the less-confident to get going. Low-cost too.
Investing for beginners – Audio Guide
Broadcaster Georgie Frost and our CEO Holly bash through tips and ideas for beginner investors. A 10 minute listen.
What is a fund manager and what do they do for me?