PS: Behind the details, hidden often are their life experiences.
Firstly, let's have a simple understanding of what a fund is. A fund refers to an investment product where a fund company collects money from investors and invests it in various ways according to the rules of the China Securities Regulatory Commission.
Speaking of risks, it is important to clarify that the highest risk in a fund is stock funds. So what are stock funds? They are funds where stocks account for more than 80% of the investment product. These types of funds diversify their investments across many stocks rather than focusing on a single stock, which is known as portfolio diversification.
Portfolio diversification, in today's terms, means "don't put all your eggs in one basket." This investment approach is now considered common sense. The theory of portfolio diversification was proposed by a young man named Harry Markowitz in the 1950s in the United States. He won the Nobel Prize in Economics in the 1990s, highlighting the importance of this concept.
A fund itself is a form of diversified investment. Through the process of ups and downs, it reduces overall investment volatility and can achieve good returns in the long term. It focuses on long-term investment and trends, while stock traders focus on short-term trends.
The risks mentioned above are inherent risks of the product and are risks that any investment product has, which cannot be avoided.
In addition, there are systematic risks, such as when a country introduces policies that cause most stocks to rise or fall together. No matter how diversified the investments are, it is impossible to avoid this volatility. The returns of a fund are closely related to stocks. At this time, it is impossible to avoid this volatility, and this volatility will be superimposed on the long-term trend. Of course, this volatility will decrease over time and have less impact on your investments. However, this is based on the prerequisite of your long-term investment. Otherwise, if you do not actively smooth out costs, how can costs decrease, and how can you gain anything?
Risk and return are interdependent. If you want to study funds, pay more attention to their long-term trends. With the passage of time, the high risk brought by high returns will be smoothed out. It is best to understand this volatility through personal practice and experience the impact of market fluctuations on your own mentality.
In summary:
- Funds are suitable for long-term investments.
- Short-term investment risks in funds are greater than long-term investment risks, and risks decrease as time goes on.
- Risk and return are interdependent, and there is no investment product with high returns and low risks.
- Portfolio diversification theory does not apply to stocks, especially for those who decide to trade stocks.
- The risks of any fund are smaller than those of stocks.