Why we use funds, and why it’s a good idea

The Saltydog system is based upon investing in funds, not purchasing individual company shares.

The reason for this is very simple: when Douglas Chadwick (Saltydog founder) started investing it was using funds, and he developed the system from there.

However, despite that quirk of personal history, there are three definite advantages of using funds for your investment portfolio:

1. Easy access to all sectors and markets

   Buying individual company shares in some markets can be tricky. On the other hand, UK-based funds are easy to buy, and provide us with exposure to all markets and sectors across the globe – allowing us to take advantage of uptrends wherever they occur.

2. Spreading your risk

   If you buy an individual company share, you run the risk of that company performing badly or going bust. Whereas a fund will have, say, 20-30 companies in its portfolio, and your investment is spread across all of them. Thus with a fund your risk is much more diversified – which is a lot safer.

   Of course you still need to pick the right sector of the market to invest in – but that’s what the Saltydog system is all about, and we’ll get on to that in a minute.

3. Smart people pick the shares for you

   Picking individual company shares successfully is a difficult job. If you’re going to do it properly, you need to do a lot of analysis and have a good understanding of the market and the company’s competitors. Do you have the time, inclination or expertise for that?

   On the other hand, a fund manager is a smart person who specialises in their area of the market and spends their entire working week trying to understand it better. Plus they have a team of analysts poring over the companies in this sector. Can we pick individual shares as effectively as them? Probably not. Let’s have the professionals do the job for us.

Of course, some people want to pick individual company shares. That’s fine, but it’s not what the Saltydog system is about.

Other people will object to using funds for a very practical reason: the cost.

I won’t go into this in detail right here. (For a full explanation of the costs involved in funds, and how they compare with buying individual shares, please see our Guide to Getting Started). But suffice it to say that fund costs have dropped significantly in recent years, and contrary to popular belief it can actually be as cheap or cheaper to trade in funds as it is in shares.

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