It can be difficult to build an effective portfolio by investing in shares yourself. To find enough investment opportunities, you will probably need to research a great many companies from across a wide range of sectors and market. And unless you have significant amounts of money to put aside, you are unlikely to be able to buy a wide enough selection of holdings.

Working together

Fortunately, there is an easy alternative. You can invest in mutual funds. These investments are offered by financial institutions, such as banks and investment companies. When you invest in a mutual fund, your money is pooled with that of other investors and the manager of the fund invests across a range of sectors in a wide selection of companies often between 80 and 100, though it can be more that meets their mandate.

If, for example, you choose an emerging markets growth fund, the manager would invest in a selection of businesses from across the worlds emerging markets, focusing on companies that he believes have the potential to produce the greatest returns over the coming months and years.

An expert's selection

Mutual funds offer you a way to invest in more companies from a great range of markets, but they also have another major advantage. You can benefit from the expertise and experience of a professional fund manager and the immense research resources that they may be able to draw on.

The best investment companies have teams of analysts "on the ground" around the world. This allows them to search across entire markets or regions for companies with unrecognized potential and a reasonable share price.

Once a company has been identified as a possible investment opportunity, the teams will analyze it carefully, evaluating the balance sheet and meeting the management. Their research doesn't stop there. They also ask company's suppliers and customers for their views.

The largest and best known investment companies can go even further than this. Thanks to their reputations and presence in the marketplace they can get significantly more access to key personnel at each company. This allows them to look beyond the standard presentations and get a first-hand view of developments that may be affecting the price of a stock.