A managed fund, also known as a unit trust, is simply where you pool your money with other investors into a single fund. The fund has a fund manager who will invest on your behalf. The fund manager is then able to spread their accumulated buying power across a number of different investments.

A fund manager accepts the worry over the investment—that’s what they are paid for. When the share market falls heavily they can be more level-headed than you are in how to handle a share market melt down. There are many other advantages of using a fund manager. They may be able to buy certain shares or be able to participate in an IPO (an initial public offering, commonly known as a share float) that you could not do as an individual investor.

A major advantage of a managed fund is that if you only have a small amount of money to start investing you can still buy shares through a managed fund and keep adding to it as part of your savings plan on a regular basis. Investing in a $500 block in a share parcel doesn’t offer strong returns, however by using a fund manager and investing $500 per month in that fund you will not only increase your share holding, you will also benefit from dollar cost averaging. Dollar cost averaging is investing a fixed dollar amount on a regular basis, in order to smooth out the volatility in the marketplace.

Managed funds do attract fees known as management expense ratios (MER) and some managed funds may also charge entry and exit fees. Like any investment, there is also no guarantee that a fund will make you money and always remember that past performance of a managed fund is no indication of its future performance.
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Managed funds do attract both direct fees (charged directly against the account) and indirect fees (not charged against the account but against the gross investment return) and may also charge entry and exit fees and fees for certain transactions. Like any investment, there is also no guarantee that a fund will make you money and always remember that post performance is no indication of future performance.
Compounding
Now here comes the power of being an investor and not a trader—the power of compounding.

The key thing in investing is that you must reinvest your returns. The income your investment produces needs to keep working for you for as long as possible before you need to take the cash out.

This may be difficult as you may intend to place your child in preschool and this means your investment is only working for five years from the birth of your child. Of course an investment compounding for 10 years or more is going to yield a better result.

As a parent, it is your duty to make financial education a regular dinner conversation in your home. You need to practice it and your children need to learn how to budget and save.