PS: Behind the details, hidden often are life experiences.
First, let's have a basic 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 riskiest type of fund is the equity fund. So what is an equity fund? It is a fund where stocks account for more than 80% of the investment product. This type of fund diversifies investments across many stocks instead of 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 seems obvious now, but it was proposed by a young man named Harry Markowitz in the 1950s in the United States. He even won the Nobel Prize in Economics in the 1990s, highlighting the importance of this concept.
A fund itself is a way of diversifying investments. Through the process of ups and downs, it reduces overall investment volatility and can achieve decent returns in the long run. 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 present in any investment. They 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 funds are closely related to stocks. At this time, it is impossible to avoid this volatility. Moreover, this volatility will be superimposed on long-term trends. 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 don't actively smooth out costs, how can costs decrease and how can you gain something?
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 by practicing it yourself and experiencing the impact of market fluctuations on your mentality.
In summary:
- Funds are suitable for long-term investments.
- Short-term investment in funds carries more risk than long-term investment, and the longer the time, the smaller the risk.
- Risk and return are interdependent, and there is no investment product with high returns and low risk.
- Portfolio diversification theory does not apply to stocks, especially for those who decide to trade stocks.
- The risk of any fund is lower than that of stocks.