All investors need cash. Cash is an essential part of a well-managed portfolio. Holding cash can be a good short term approach as it involves little risk. Over the longer term, however, investors need to realise that a risk does exist since interest earned may not be as high or any higher than the rate of inflation. ( Eg. cost of living increases over time and can tend to reduce the purchasing power of savings ).
Money market funds are cash funds invested in international, short-term interest-earning securities, such as certificates of deposit. They are usually available in a number of different currencies, ie. sterling, euros, US dollars, Japanese yen and Swiss francs.
These funds offer the benefit of stability and a high degree of liquidity.
These funds invest in government and corporate debt and only in bonds carrying excellent credit ratings. They are available in sterling, US dollars and euros. They offer exposure to global bond markets but protect you against the risk of loss by smoothing the returns.
This fund invests in a balance of cash and equities to smooth the effects of the volatility associated with an exclusively equity based investment.
It provides:
Building individual portfolios from scratch can be an expensive and time consuming process. For this reason Managed funds have proven to be a highly popular way to diversify with the underlying assets comprising a wide spread of equities, bonds and cash.
They are often available under the following headings:
These carry the lowest risk and invest mainly in fixed interest securities such as corporate and government bonds.
These invest primarily in fixed interest securities but carry a higher proportion of equities than the defensive funds.
These invest in large, well-known companies ( often comprising about 60% of the fund ) with a proportion of fixed interest securities ( around 40% of the fund ) and aim to provide long-term capital growth. The majority of the fund is normally invested in assets matching the underlying fund currency. In terms of risk 'Blue Chip' funds sit in the middle of the Managed funds range with a more balanced split between bonds and equities than the other managed funds.
These also invest in a spread of equities and the exposure to fixed interest securities is lower than that of 'Blue Chip' funds.
They aim to produce a healthy long-term return from a balanced combination of investments in international companies.
These are the most flexible of the range of managed funds and the fund manager retains the ability to invest in growth opportunities worldwide without any restrictions on the currency of the underlying investments.
In order to maximise the growth potential, these funds invest in a wide range of markets and stocks of both large and smaller quoted companies with the aim again of providing above average longer term capital growth.
These offer a wide variety of equity funds ranging from global to single country as well as emerging market funds. Smaller companies also feature at both a regional and single country level.
For those wishing to further diversify their portfolios there are opportunities to use sector themed funds which include Health, technology, property, energy and commodities.
These are often entitled " Socially Responsible Investments" ( SRI ) and they have the dual aim of maximising financial return as well as securing current and future social and environmental good. The SRI fund Managers favour corporate practices that are environmentally responsible, support workplace diversity, increase product safety and quality and follow best practice corporate governance standards. Many of these funds avoid holding assets in businesses that are involved in alcohol, tobacco, gambling, weapons and other military industries.