Sit back, relax 😌 We’re going to tell you a story from the good old days.
Back then, if you wanted to watch a movie you couldn't simply stream it on your computer with a few clicks 🖥 You actually had to go to a shop to find a physical copy of the film you wanted to hire out, take home, and watch.
If they didn't have the movie you wanted... too bad! 😥
In the early 2000's, there was a company called Blockbuster, and they were the ones to beat in the movie-rental game. Every town or even village had a Blockbuster, and in the pre-streaming days business was booming 💥
Potential investors watched Blockbuster’s growth with interest 🧐 And with the dawn of another new technological advance (Blu-Ray) on the horizon, many decided to buy Blockbuster stock.
Things didn't exactly go to plan though 🤦♂️ Contrary to predictions, it was Netflix and fast internet that changed the home entertainment industry, forever 🎥
Nobody wanted to spend Friday night in a store, fighting over their movie choice anymore (they could now do this from the comfort of their home). Blockbuster filed for bankruptcy in 2010, and the value of its stock was reduced to nothing 📉
This tale is intended to show the danger of picking single stocks. If you put all your eggs in one basket and something goes wrong, you have no Plan B 🐣
Thankfully there are now financial mechanisms which exist to help prevent people falling into this trap, and one example is a mutual fund.
A mutual fund is a financial vehicle, often professionally managed, which allows people to contribute their money into a shared pool. This money is then invested in a combined portfolio of shares, bonds, or other assets, In other words, the portfolio is more diversified.
A mutual fund will typically hold a portfolio containing many different securities, so the risks are spread, Therefore if one company in the portfolio has a bad quarter, you don't stand to lose a great deal because only a small proportion of your overall investment is tied to that specific company 🍰
Mutual funds can be operated by professional money managers who pick which shares or bonds are included, and decide the most appropriate mix of asset classes. This allows you to tap into the wisdom of professional investors.
Another approach is for a mutual fund to track a particular index. For example, rather than relying on an investment manager to try and pick winners (which can be a tricky ️🔮), you can invest in a bundle of stocks such as the S&P 500.
This spreads your investment across the 500 largest companies in the US, the ethos being that you’re not trying to outperform the market, but merely to achieve the same returns.
We have designed Plum to offer simple investments, and as such we provide a range of mutual funds to choose from, depending on your appetite for risk.
If you'd like to learn more about Plum then you can check out our website.Download Plum
Remember, your capital is at risk if you choose to invest.