PS: Behind the details, what is often hidden is one's life experience.
First, let's briefly understand what a fund is. A fund refers to an investment product in which a fund company collects money from investors and invests in various ways according to the rules of the China Securities Regulatory Commission.
Speaking of risks, the riskiest type of fund is equity funds. So what are equity funds? They are funds in which stocks account for more than 80% of the investment product. These types of funds diversify their investments across many stocks rather than 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, showing how important this concept is.
A fund itself is a way of diversifying investments. In the process of ups and downs, it reduces overall investment volatility and can achieve good 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 risks that exist in any investment product. They cannot be avoided.
In addition, there are systemic risks, such as when a country introduces policies that may 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 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 don't actively smooth out costs, how can costs come down, and how can you gain something?
Risk and return are symbiotic. 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 ups and downs on your mentality.
To summarize:
- Funds are suitable for long-term investments.
- Short-term investment in funds carries greater risks than long-term investment, and risks decrease over time.
- Risk and return are symbiotic, 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 lower than those of stocks.