Managed funds are one of the investing tools you can use when you are interested in investing in the stock market. Managed funds help to reduce the risk that you have when you invest in just one stock or type of stock.
A managed fund invests in a wide variety of stocks, both different companies, and companies that in different business sectors. This way if one part of the market goes down the overall value of the fund only decreases marginally.
Managed funds are a good option if you do not know much about investing or if you are nervous about putting your money in the stock market. However not all managed funds are created equal and you will still need to complete research to do it properly.
Choosing a Fund
When you are choosing a fund there are several things that you need to look for in order to choose a fund that will do well for you.
- Earnings Statements and Averages: It is important to find funds that offer high rates of return over the last several years. You should look at the earnings reports each year and try to find a fund with an average of at least 8 per cent return on your investment.
- Management History: If a fund just changed manager sand has a new person or team in charge of it, it may not perform as well as it did in the past. You want someone who knows what he is doing to manage the fund. He should know when to sell certain investments to help you earn good returns.
- Fees: There are a number of fees associated with each managed funds. The fees including loading fees (fees when you buy) and maintenance fees (fees for maintaining the fund).
- Balance of the Fund: When you are looking at the different funds, you want to find one that is well balanced with a variety of companies included in the fund.
When you choose a fund, you want to balance the fees out against the average rate of return. So if you can find a fund with lower fees but a good track record of high returns, you should choose that fund.
Some say that fees are the only consideration, but you should make sure you are choosing the lowest fees possible with a reputable fund.
Types of Funds
There are several different types of funds. The fund type may refer to the types of shares that are purchased as part of the fund or to rules regarding buying into a fund. A basic understanding of the fund types will make it easier for you to find
An Open Ended Fund allows you to buy and sell shares of the fund at any time without penalty. They may offer new shares of the funds at any time to users.
A Closed Fund offers the opportunity to purchase shares in the fund when it first opens. If you want to sell the shares at some point, you do at a discounted price that is usually lower than retail value for what you have in the fund.
A Bond Fund usually invests in one or two of the various types of bonds. These can include government bonds and junk bonds.
A Money Market Fund invests in securities and works to keep the shares at a value of about $1.00 each. They are open-ended funds, and some people will use them similarly to savings account.
A Stock Fund mainly trades in different shares of companies. A good fund will diversify the shares over several different types of companies to help reduce the risk
Advantages of a Managed Fund
One of the biggest advantages of a managed fund is that you do not need to do a lot of work once you have invested in the fund. The funds manager will monitor the shares and make the decisions about when to sale or purchase more.
If you pick a good fund, you can grow your money relatively safely.
Disadvantages of a Managed Fund
If you understand the way the market works, you may not be willing to give up control of your investments. However, the biggest disadvantage of a managed fund is the fees associated with the fund.
You can lessen this risk by choosing a fund with low fees; especially pay attention to the annual maintenance fess when looking at accounts.
Buying Into a Managed Fund
A financial advisor can help you understand the reports about each fund and give you advise about which funds best fit your current investing strategy.
If you are a more conservative investor he should point you to more conservative funds. If you are willing to take more risks, he can help you find a fund that will have a higher rate of return, but has more risk to it.
A financial advisor can also help you to avoid selling the fund at the wrong time. He can help you determine if the market will correct itself soon or if a plunge will last for some time. A financial advisor is a good choice if you do not understand investing at all.
You may also be able to purchase shares of a fund by yourself or through an investment website, similarly to stocks. You should carefully consider all of the available reports and other information before you pick a fund.
You may want to have your money split between two or three different funds to further lower your risk.
Managed Funds In Superannuation Accounts
Most superannuation accounts are managed funds.
When you open your superannuation account, you should consider the same facts that you would if you were opening a managed funds account on your own. It is important to think about your risk and relative retirement age when you are choosing funds.
The closer you get to retirement, the more conservative you want your investments to be.
If you are nervous about entering the managed funds market, it can be helpful to realize that you already have managed funds through your super account. If you are happy with the way your super is performing, you may want to look for a managed fund managed by the same team as your super.