Managed Funds - An explanation.
While there is a wide range of investment options available, there are two main ways you can invest your money - you can invest directly (for example in shares or property) or you can invest through a managed fund. This article examines why one would choose to invest through a managed fund.
Note: This is not a substitute for financial advice and should not be used as a basis for financial decisions. Please consult your financial adviser first before making any financial decisions.
ACCESS TO INVESTMENT OPPORTUNITIES
Your money is pooled with that of many other investors, giving you cost-effective access to investment opportunities rarely available to individuals. These larger investments often represent assets of superior quality which offer greater returns.
Some investments are also generally not available to the individual investor – for example, investing overseas or in a range of mortgages.
EASE
No expert knowledge on your part is required.
SPREAD OF RISK
Investing in a wide range of investments helps spread risks. It is difficult for the average investor to do this. A managed fund pools your money with that of hundreds of investors to achieve economies of scale. A wider range of investments within an asset sector or across sectors can also help to reduce price fluctuations.
LOW MINIMUM INVESTMENT
Many investment opportunities, such as commercial property, require large amounts of capital. With some investment portfolios, you have the option of investing only a small amount of money per month (as low as $50 per month).
CONVENIENCE AND TIME - SAVING
Managed funds help investors greatly reduce the time-consuming paperwork associated with managing an individual portfolio, such as share dividends, mortgage administration, or looking after tenants. This represents an advantage to investors who are too busy earning their income to involve themselves with the day-to-day investment administration. Similarly, those who have achieved financial independence may prefer to devote more time to their leisure activities. All income is automatically reinvested – an option which may not be available with direct investments.
PROFESSIONAL MANAGEMENT
Fund management companies employ investment experts to select and manage shares, debentures or other financial instruments in their area of speciality. There has been a bit of negative press around managed funds recently with some companies freezing their funds. It is therefore important to do your own research and ensure you are comfortable with trusting those who you invest with. An expert with combined experience is invaluable in spotting investment opportunities and avoiding unnecessary risks. They maintain extensive contacts and have access to detailed information which, together with in-house analysis, helps them choose the right investment. A financial adviser will be able to assist you in finding out how well a fund is managed.
LIQUIDITY AND FLEXIBILITY
Investors can generally change or cash in all or part of their investment at short notice. You can increase contributions, alter the portfolio mix and extend the term of the plan (subject to certain restrictions).
This information is general in nature and should not be used as a substitute for financial advice. Always consult your financial adviser before making any financial decisions.