Movies like The Wolf of Wall Street, and episodes of Sex and the City make the stock market feel glamourous and exciting, right? So when our turn comes to invest our hard-earned dollars in some shares, of course we get excited about one day feeling the rush of adrenaline associated with stock prices going up!
But our dear friend Miranda Hobbs was right when she said the stock market is volatile. Picking just one stock to invest in is the financial equivalent of putting all of your eggs into one basket – when you know that generally speaking, spreading the eggs around into different, separate baskets is a better way forward.
So today I wanted to talk to you about the latter strategy. A way to spread those hypothetical investment eggs, without the personal challenge of managing a million baskets: the managed fund.
What is a managed fund?
A managed fund is a fund that invests in a variety of shares (and other investments such as cash and property). Your money is pooled together with other investors, and an investment manager buys and sells shares (also called stocks) on your behalf. When you buy into the fund, you effectively buy small portions of each of the stocks the fund owns. And because it’s not just investing in one stock – the risk is spread across many – if one goes down, the overall value of the fund doesn’t immediately plummet.
It is important to note that there are different types of “managed funds”. Retail (or traditional) managed funds, ETFS (Exchange Traded Funds – funds you can invest in via the stock exchange), Listed Investment Companies (LICs), are all types of managed investments.
So how do you pick the right managed fund? Great question. Here are some things to consider when looking for the right fund for you.
1. Know what investment options you need
There are a lot of different managed funds that operate under very different investment profiles. So, it’s important to be clear on your timeframe, the risk you’re willing to take on, the returns you’re looking for and the asset class you want to invest in (like shares, property, cash or bonds). You can choose a fund that specialises in one of the classes of your choice, or you can further spread your risk by going for a fund that invests across all asset classes.
2. Check the fine print
Find out if the fund has a minimum investment amount or time frame, how easy it is to remove your funds if you needed to and what their fees are. Most funds charge a management fee which is calculated as a percentage of the investment, anything up to 2-3%. Some also charge transaction fees every time they buy or sell, or performance fees where there is a profit made. When you add them up, the fees can take away a good portion of your returns, so do some of the maths before you commit.
3. Look at the fund management team, their strategy and their results
Look out for their investment process and philosophy, a good performance record, and experienced investment managers at the helm. Do your research and ask yourself, do you understand and agree with their investment philosophy? Does it align with your objectives? Are the investment managers reputable? Do they invest their own money into the fund? Have their returns been consistent over an extended period (during good times and bad)?
If you’ve invested in a managed fund I’d love to hear your experience. Head over to the Women with Cents Facebook page to share your stories! If you would like to learn more about investing and other finance topics, be sure to check out my new book “Wonder Woman’s Guide to Money“.
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The information provided by Women with Cents is general in nature. It doesn’t take into account your objectives, personal financial situation or needs. Think of it as educational material in which to help you make more-informed decisions. We recommend you obtain financial, tax and credit advice specific to your situation before making any investments or financial decisions.
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