2 August 2017
Investing in funds is more risky than, for example, using term deposits or buying government bonds, but can bring more satisfactory returns. Moreover, unlike e.g. trading shares on a stand-alone basis, it does not require a high level of time commitment or advanced knowledge of the financial market and its instruments.
However, in order for investing in funds to bring the expected results, it is first necessary to ensure appropriate substantive preparation – to get acquainted with the essence of the funds’ operation and obtain advice from specialists, which will protect against simple errors, typical for beginners, investors. Here are 10 tips for the start of your adventure with the funds.
Set the time horizon for your investment in the fund and specify your objectives
If you are looking for a long-term investment in funds, choose more risky products (e.g. equity, commodity or commodity funds). Although over the life of an investment its value is usually subject to large changes (including unfavourable ones), in the long run many of them yield above-average returns. If you can deposit your funds for a relatively short period of time (shorter than 2-3 years), it is better to choose safer funds (e.g. bond funds). Closing an investment by necessity in accidental moments (e.g. due to an urgent financial need) has nothing to do with conscious investment, but only such an investment can prove effective in the long run.
Check the funds you want to invest in
The type of fund, investment strategy, fees and performance of managers are all elements that need to be checked before each fund can be acquired. It is a good idea to check the performance of the fund over the years and to compare it with that of its competitors.
Define your risk aversion and match your fund to it
Investment in funds must be accompanied by a sense of awareness that nothing is safe or secure in the financial market. Check with the record negative rates of return of individual funds and see if you would be able to accept such a loss.
When selecting a fund, do not be guided solely by its historical performance
Remember that both market behavior and investor reactions can be unpredictable. There is no guarantee that the fund, which in previous years was among the best, will remain among the best in the world in the near future.
Reduce risk by diversifying your portfolio
Avoid depositing all your investment funds into one fund. It is good practice to purchase several different funds in order to limit the potential extent of losses.
Don’t be fooled by the advertisements and persuasions of your financial advisors
Investing in funds requires keeping a distance not only from market events, but also from all advertisements, analyst forecasts and hints of financial advisors. Their interests do not always coincide with those of investors. What’s more, professionals can simply be wrong with their predictions.
Buy cheap, sell expensive
The most money goes to funds at the top of the stock market boom (long-term price increase), and the least to funds at the bottom of the downturn (long-term price fall). It is not worth opening an investment after a long period of price increase, and at the same time it is not worth closing it after a longer decline, because the valuation of units, like the prices of other instruments, “return to the average”. This means that after decreases there are increases, and after increases there are decreases, which make the valuation of a given financial instrument realistic.
Investing in funds – where to start?
Those wishing to start investing in funds should be interested in Deutsche Bank’s proposal (for details see: .) as it provides convenient online access to one of the widest fund offers (amounting to over 800 products), and at the same time it does not require declaring regular payments or an excessive entry threshold – investment can start from as much as USD 100. Importantly, on the platform provided, investors can easily search for funds that match their preferences – e.g. according to the criteria of their investment policy, the geographical area in which the fund invests, or the currency in which it is valued.
2 August 2017