Investing money for the first time? Why funds are a good idea

Funds are a particularly good way to try out the world of investment for the first time. That's because they don't require extensive know-how or experience in dealing with securities. What's more, you can usually get started with small amounts of money.

A wide range of asset classes

Funds are like large pots that lots of investors all pay into. This money is then invested in a wide range of asset classes, such as shares, bonds or real estate.

The associated risk is therefore spread widely. If one security doesn't perform optimally, this can be offset by other, better-performing securities in the fund. The aim of a fund is to ensure a return on your capital through a clever combination of securities.

Experienced fund managers look after the money in a fund. They decide which securities to invest your capital in, based on the investment strategy of the respective fund.

If it's a growth-oriented equity fund, for example, they usually pick shares in technology companies whose sales and profits are expected to grow at above-average rates in the future.

Risk appetite influences returns

The size of your potential returns depends on the risk profile of your chosen fund. For example, some equity funds invest in volatile markets, while others focus on specialised sectors, like technology or emerging markets. This potentially means higher returns, but can also expose you to greater losses.

In contrast to high-risk equity funds, bond-based funds fluctuate less in value. But they also offer significantly lower returns. Your individual capacity and appetite for risk to meet your investment goals will determine which fund is right for you.

Invest for as long as possible

One important thing to note is that funds can also experience fluctuations in assets. This is why you should try to invest your money over longer periods in order to offset temporary price drops over time. That means holding out for at least four years - and preferably ten. The higher the share of equities in your fund, the longer the investment horizon should be.

Tip: With a fund savings plan at a bank, you can have a fixed amount debited from your account on a regular basis and invested in a fund. This helps you to establish a savings routine.

Amalia Bianda is a client advisor at Migros Bank and an expert on investment topics.