As most investors know, diversification is a great measure of protection from the depreciation of certain assets. If your investment portfolio is weighted heavily in stocks and the market takes a downturn, so does your balance. But if your investments are spread out among various securities, the loss in value of one can often be offset or lessened by the stability and/or growth of others.
What is a Managed Fund?
A managed fund is a type of investment comprised of multiple securities (stocks, bonds, etc.) that involves the funds of multiple investors. The theory here is that with more people investing in a certain fund, the more money the fund can raise and therefore invest for profit.
Managed funds are a great choice for those who have little to invest and want to share the risk with other investors. When the managed fund profits, everyone who has invested in it shares its success. Of course, when the fund’s performance lags or takes a nose dive, everyone shares that as well so be sure you are comfortable with the idea of losing your money.
Pros and Cons of Managed Funds
As with any investment tool, managed funds have a variety of pros and cons. The benefits of a managed fund include reduced risk, professional management, convenience and even low costs of entry. Managed funds can also be a convenient way to gain experience as you learn the ropes as a new investor.
On the flip side, managed funds can have high fees, the success of the fund it at the mercy of the fund manager and there is no guarantee that money will be made. In fact, you could lose your initial investment and then some!
How to Make Managed Funds Work for You
If you’re interested in investing via managed fund, take note of the following tips:
- Research all of your options including the company and the fund manager
- Request (and read!) the fund’s prospectus before you hand over any money
- Ensure you’re aware of any and all fees associated with investing in the fund—both in the short and long terms
- Have a clear set of goals defined before you invest your money—what are you saving for?
- Understand all of the costs associated with the investment—including taxes!
- Monitor the progress of your fund (and its manager)
- Make all changes via writing and save your records
Do you invest in managed funds?