Ten smart tips: Success with mutual funds
Additional pension, a financial buffer or the desire to get more return on savings. Mutual funds are often above the ideal agent. But what are mutual funds and how to choose the best funds?
A mutual fund is basically nothing but a pot of money from many investors. That pot is for those managed by the fund manager. Investors will share in the return – or loss – in proportion to their contributions.
The fund manager must make a profit, but must therefore be within the objectives, investment strategy and the selected segment of the fund operate. If you’re in a China equity fund gets, you want is not there also be purchased bonds from Poland.
There are funds that only invest in listed companies – equity funds – and there are funds in the bond holding: the bond funds. In addition there are many other flavors, real estate, commodities to private equity. Investing in a fund has advantages and disadvantages.
The main advantage is that investors already from small amounts to profit from a diversified portfolio. Diversification reduces the investment risk. Another advantage is that you as an investor have little to worry about, the fund manager keeps the show daily in the holes and fit the investment portfolio as needed.
A disadvantage is the cost of those services. Mutual funds employ a management fee, plus a number of other costs. Usually, not always, the TER (total expense ratio) the total cost of an investment fund.
Another problem for the investor is that there are many investment funds, investors have a range of literally thousands of funds to choose from. That still requires the necessary investment knowledge. This website wants the underlying Fund Compare that choice a little easier. First ten tips.
1. Compare pays
Meanwhile, there are thousands of mutual funds from which investors can choose. The differences in performance are great. Simply a fund from your bank take, therefore never wise. So go shopping, this Fund Compare can help. Paying attention to the price of a share / participation in a fund. That says nothing about the quality of the fund. Important to look at include the risk, return and cost.
2.Hoogste return not holy
Many investors want the highest possible return. This also applies to people who fund steps. The funds with the highest returns than naturally attract the most attention. So simple it is not. Thus, the priority is historical returns, returns in passing years have made. That does not mean that funds continue to get the same return. If you our Fund Compare the funds with the highest returns outlet, there can at most conclude that the fund manager and the strategy were efficient. This applies especially if those high returns over a longer period have occurred. An average return over the past five years is worth the investment performance over the past three months.
3. Check the risk in the eyes
Except for the return investors would also reduce the risk of an investment fund must look. You can end the investment under the microscope. A portfolio of large multinational companies with high dividend is less risky than a basket of stocks with small Asian companies. A mutual fund that invests in 10 stocks, is theoretically more risk than a fund that invests in a basket with 100 equities. That last basket is better spread.
Risk is subsequently measured by looking at how fickle the price trend of a fund has been. The Fund Compare allows you to arrange funds on volatility (volatility is given in percentages). The higher the percentage the more volatile the price trend has been.
Investors usually want a good return at an acceptable risk. In the investment world there are ratios that combine both, but they are usually technically. In our Fund Compare – a collaboration with shareholders association VEB – both elements are combined in a judgment, the VEB rating. The interests of investors makes it also a third element loads: the amount of the costs. The higher the rating, the better a fund scores on these factors.
4. Cost: all except afterthought
The costs of decisive influence on the investment result. A guideline for this is the TER charge (TER stands for total expense ratio) although not everyone is convinced – rightly – that includes all the costs are included. A charge of 1.5% per year might seem at first glance not high, but the costs are usually deducted when negative returns are achieved. Unlike the returns are the fixed costs are, unless they are partly related to the result (perfomancefee). A mutual fund that invests in equities, has a quick charge of between 1.5 and 2%, but it can also be much higher. Index funds, also known as trackers or ETFs, known lower cost. This is due to their passive strategy: the investment is reflected in an index different from a so-called active strategy where an army of analysts to determine which shares are bought and sold what. The funds in our Fund Compare can be arranged at the level of costs.
5. See the man behind the fund
Within investment managers have ample room for their own decisions. That can be bad as the manager really only does what, or very good as manager knowledge and a good nose for opportunities available. As an investor you rather sit at a manager in the latter category. Although increasing funds an entire team managers at the helm, you can also team along the yardstick. Important how long a team or manager is in place. Is that for years and were the returns for those years well, then that is a positive sign. Is a manager briefly his or her place, there is little to say about it. When a fund manager for many years and always governs poor results achieved, as an investor you can only ask one thing: why is this man still in place?
6. Test periodically the investment
Investors are primarily for their convenience in a mutual fund. They also benefit with stock market returns – hopefully positive – but not before having himself daily with the prices in the newspaper and on the Internet to be busy. Yet it is important to outline it yourself in the monitor. The strategy of a fund may work well because for years, but a consistent success is very difficult. Thus fell the famous Fortis Obam (now BNP Paribas) from its pedestal after the emerging markets crashed went. The globally investing fund had as an above-average proportion of the portfolio invested. Or think of investment in government bonds. That might have made a nice ride up – if there is not too much Italian, Greek or Spanish pieces were – but how feasible further price rises in countries like Germany which at record low interest rates are?
7. Beware fashion hypes
Providers like to play in a trend. Then suddenly dozens funds around a special theme launched. An example of now already more than ten years ago the aging funds and ICT funds. Nowadays, especially in emerging market funds and corporate bonds in demand. Themes are based on past performance. Nothing attracts investors as soon as a rising trend. The question is whether the line continues in the same direction. By the time providers launch their funds there is usually considerable time already elapsed. So be careful with the fund fashion. Eventually you get the jacket or the skirt of last year. And who could ever quite ugly clash with the trend of the coming year.
8. Durable not so crazy
Many providers have a sustainable fund range. Some asset managers have even specialized. For investors who want their money is invested according to ethical standards, this is a godsend. Research shows that sustainable investment in the long term as well if not more cost effective. That makes it so perfect for wealth for the long term. Sustainable investors should be good strategy fund their review and critically on the cost. There is today little reason why sustainable funds should be more expensive than traditional mutual funds.
9. Scale counts
Both the size of the fund as well as the management company is important. So you may wonder whether a fund provider who focus on hundreds of funds to distribute, no concentration problems. In return comparisons are smaller fund houses often positive, partly because they focus on one or a few themes. Regardless of the provider is also the scale of the investment fund itself important. On a small fund pressing the fixed costs very heavy, so the cost is relatively too high. Large funds of over one billion euros contrast again struggled on the exchanges act because of their size. Do they make a purchase, then drives the order a size up the price. That his costs. The smaller the market and the larger the fund, the greater the disturbance.
10 A purpose helps
This last tip is at first sight perhaps with a little investment to make, but looks can be deceiving. Actually this is the first question you should ask yourself: “For what purpose I invest?” That determines when the investment income needs and how long you can spare the money. Based on your answer you already directly delete certain investment categories. Young people who invest for their retirement, have for years time. The risk of equity is good to wear. But if the money is needed within a few years, its shares too risky. With equity prices can go down just because when you want to free up the money. Then perhaps you had better bonds or sit it on a savings account can take. Your goal therefore determines what funds you can best steps, or you might not should invest.