The investment fund that you choose should fit your portfolio and investment goals. 

So you have thought about it and decided, “I just turned 30 and there is no time like the present.” I’m going to invest on the stock market.

Very exciting. Good for you. Now that you’ve made the decision, let’s get started! Investing is exciting and can be a lot of fun, if you do it right and responsibly.

1# Financial Goals

The first thing about investing is to decide why you are doing it in the first place. Maybe you want to retire at 55. That might mean that you won’t have enough by simply saving your money. You might need another source of income. Investing could be that source.

Or maybe you’re a wild one and you think that investing could be exciting – watching the value of your money invested fluctuate up and down like a roller-coaster.

Start with your financial goals. Also decide what you’re into. Whether you want to make money slowly, or if it gives you a thrill to take some of your money and use it to play around with on the stock market in ways that might soar or crash and burn (though perhaps foolish and naïve), it is all up to you.

2# Capital

Let’s start with money. Or as we will refer to it in refined terms; Let’s start with capital.

When you want to invest you will start with capital that you want to invest, so that you can make more money. More capital.

You can get money together in two ways. This is called “raise capital”. You can raise capital in two ways;

• Incurring Debt
• Raising Equity

You can incur debt in many ways. By going to the bank and asking for a loan. The may give the loan a fancy name like a line of credit, a mortgage or something else, but basically, they are lending you money. Usually in exchange for some money over the time that you are borrowing it. This is because they want a return on their investment, their investment being in you.

You can raise equity in many ways. You can save up a bunch of money from your pay checks.

Another way to raise capital is, for example of you own a company, by going to a bunch of investors and asking them for their money, and giving them something in exchange, like a part of the ownership of your company.

So, to start out, if you want to invest, you need something to invest. You will need capital.

3# Investment Funds

An investment fund is a source of capital that is designated to be used to invest. It belongs to a group of investors. Basically, this would be you, getting together with other investors, to collectively invest in the stock market.

The fund operates as a company, so it has shares. The fund collectively buys securities on the stock market. Though as an investor, you each have ownership and control of your own shares in the fund.

The benefit of an investment fund, rather that only investing yourself, is that it:

• Benefits from greater management expertise
• Provides a broad selection of investment opportunities
• Has lower investment fees because of the economies of scale, as all the investors share the fee

A drawback could be that you move as a group, with the investment fund. A fund manager manages the capital in the fund and decides which securities it buys and sells as well as when that is done.

As such, decisions about where you’re going to put your money, and what you will do when, is tied to the fund that your capital is a part of and is mostly decided for you.

You choose your fund, based on its;

• Goals
• Risk
• Fees
• Other factors, like what kinds of companies and sectors the fund is specialized in or focuses on.

The investment fund that you choose should fit your portfolio and investment goals. 

4# Mutual Funds

Mutual funds are a portfolio of securities, like stocks and / or bonds that are managed by a company or institution for investing parties that have bought into the mutual funds. These investors are the shareholders, as they each own shares in the mutual fund, representing a part of it’s holdings.

You earn a return from a mutual fund investment in three ways:

1. Income in the form of a distribution. You can choose to receive the distribution amount or reinvest the earnings and get more shares. There are 2 common forms: 

• dividends on stocks
• interest on bonds
• Capital gain in the form of a distribution, if the fund sells securities that have increased in price.
• Selling your mutual fund shares for a profit in the market, in the event that a fund’s holdings increase in price but are not sold by the fund manager.

Pros and Cons of Funds

There are advantages and disadvantages of funds for investors. Here is an overview of them:

Advantages

• Professional Management – not having to pick stocks and manage investments yourself, but having a skilled professional investment manager doe this through research and skillful trading.
• Diversification – Your risk is spread across many different holdings, so that a potential loss in investments is minimized by gains in others.
• Economies of Scale – transaction costs are lower than what an individual would pay for securities transactions because the mutual funds buy and sell large quantitates at a time. It can also invest in certain assets or take larger positions not available to smaller individual investors. Like access to IPO placements or structured products available to institutional investors.
• Simplicity – straightforward, low cost and if you set it up that way - automatic purchase plans.
• Variety – various asset classes or strategies - exposure to stocks, bonds, commodities, foreign assets, and real estate through specialized mutual funds.
• Transparency – Mutual funds are subject to industry regulation, ensuring accountability and fairness to investors.

Disadvantages

• Active Management – Actively managed funds incur higher fees, but increasingly passive index funds have gained popularity
• Costs and Fees – Creating, distributing, and running a mutual fund expenses are passed on to the investors. Remember, every euro spent on fees is a euro not invested to grow over time.
• Dilution – It's possible to have poor returns due to too much diversification. Dilution is also the result of a successful fund growing too big.
• Liquidity – A mutual fund allows you to request that your shares be converted into cash at any time, but most mutual fund redemptions​ are only at the end of each trading day.
• Taxes – When a security sells, a capital-gains tax is triggered. Consider tax-sensitive funds or hold a non-tax sensitive mutual fund in a tax-deferred account to mitigate this.
• Cash Drag – Mutual funds, require a significant amount of portfolios to be held in cash to satisfy share redemptions each day might. This is cash is not invested and thus earns no return, hence the term “cash drag.

#5 Broker | Brokerage

A broker executes, the buy and sell orders of an investor. This can be one individual or a brokerage firm. They earn money by charging a fee and / or commission for executing these buy and sell orders. This option usually provides less control of what securities you buy, but allows you to take a less active roll in your portfolio. The work is being done for you.

When the broker also manages the order portfolio for the investor, they charges commission for their services. One thing to consider is that investment managers or brokers make a percentage on investments that are profitable. However, they are usually not penalized when their investments loose value for their clients.

So the goal is...

The goal is to start investing. Knowing how to raise capital and how you can invest it is the first step in achieving your investment goals. You can choose who manages your money – you via your bank, a brokerage, or a fund manager to name a few of the options.

What are your investment goals? Are you thinking of investing on the stock market? Will you manage your portfolio yourself or get a broker?

Share your thoughts in the comments section below. We are just as much inspired by you, as you are by Eve & Elle.