Every Monday night, Mila and her girl friends get together to watch the Bachelorette. Before the show starts, Mila asks her friends for investing advice. She’s new to investing and wants to start, but she doesn’t have the time to spend hours doing research on her own. Her friend Alexa suggests she checks out mutual funds.
A collective investment – a pool of money from a bunch of different investors that purchases and invests in a variety of securities.
Alexa explains that her and the other girls are all currently investing their money in the Super Sexy Finance Fund (SSFF). Here, all of their money is pooled together, and managed by an expert from the Super Sexy Bank. The expert from the Super Sexy Bank takes the money from the fund, and invests it in a bunch of different securities (stocks, bonds, etc.). This is known as the portfolio.
A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents,
This expert constantly manages the portfolio, buying and selling different stocks and bonds overtime, while the girls sit back and relax. If Mila decides to buy a share in the SSFF, she’ll have a small stake of all investments included in the fund. This is great because it allows Mila to invest in a diversified portfolio, without having to spend a bunch of time doing her own research.
The girls love this type of investment for 3 main reasons:
- It’s a simple way to have a diversified investment (less risky)
- It’s managed by an expert, therefore saving you time
- It allows each girl to invest in a wide variety of investments
So…how do the girls make money? Mila asks.
Well, it’s simple. When the fund’s assets (stocks & bonds) rise in value, so does the value of the SSFF shares. This way, the girls can sell their shares at a profit. The SSFF fund also gives out dividends, which is a portion of the fund’s earnings.
Of course, if the fund’s assets go down in value, so does the value of the SSFF shares. So it’s important to make sure your expert knows what their doing! It is also important to note that when buying an SSFF share, Mila will have to pay management fees & transactions fees to the Super Sexy Bank expert for his services.
As Mila is looking to invest without spending too much of her own time doing research, this is a perfect investment option for her!
What do you think? Is this a type of investment you would like to make?