Trying to save money is one thing…but what about growing it? As promised, we are continuing our series on investing your money in the UK for your own benefit. Investing doesn’t have to be something that’s impossible or hard to understand. Simply put, it’s all about making sure that you can truly handle your money needs over time. Inflation erodes your purchasing power, which means that you have to grow your money in order to just keep up with the market. Now imagine if you just buried your money in the backyard — it would be worth a lot less than if you had put your money into the right accounts. But every guide says that, and very few actually tell you where to place your money.
It’s time to take a closer look at the OEIC, otherwise known as the Open Ended Investment Company. This is a form of a shared investment fund, and it’s going to be used to buy directly from the marketplace. It’s like a pool of money. When the pool is big, better investments can be selected. When the pool is small, all of the investors in the group have to take on a lot more risk. Therefore, OEIC’s with big pools of investors have more spending power and a better method of diversification than individuals do.
The open ended aspect is what investors really like — they can buy or sell shares as they please and they don’t have to tell anyone about it. You will see that the buy and sell price of shares are identical. You can also get back what you originally paid if you’re ready to exit, but you’ll benefit so much more if you leave your money in. The shares that you purchase as entrance into the fund are generated automatically. Your money is pooled with other investors to build a portfolio. Portfolios will have power on their own — this is where the value comes into play. If the value of all of the stocks, bonds, and other assets within the portfolio go up, then your shares grow to represent this principle.
Keep in mind that there are risks involved. You do run the risk of losing more than what you’ve invested, especially if you have an automatically investment plan set up.
You’re not going to be alone within the OEIC. Master level investing professionals manage these funds. They know that if they don’t do a good job, they’ll face a mass exodus of investors leaving the fund, cutting the money supply for everyone else. Remember what we said about big groups? Well, these investors need to make sure that they leave the door open for everyone below them to trust them. Continue reading