016 How to choose a unit trust (Mutual Fund)

Lisa Linfield takes us through the steps to choosing the right unit trust (Mutual Fund) in which to invest.   She takes us through the 7 steps to choosing a fund

The 7 steps to choosing a fund

  1. Understand your financial risk profile
  2. Match your personal risk profile to the fund
    • Often the fund has the risk profile in the name – but look closer
    • If you are not experienced, buy a fund that has a mix of assets in it.  It’s like buying a ready made meal rather than the ingredients separately
  3. Look at the tables that rank performance for that type of fund (e.g. look at the table that compares balanced funds)
    • Choose the top 3-5 performers over a 5 year period, the fund performs in the top 25% throughout that period.
  4. Take those top 3-5 funds and go and download their fund fact sheet
  5. Look at risk
    • We’re aiming to get the highest return for the lowest risk
    • Look at volatility – how much the share goes up and down all the time.  The less volatile the better
    • Or look at Drawdown – how much the share drops below the last months value – and for how long does it keep losing money
  6. Which of your 3-5 funds have lower fees.  Phone the call center and ask them ALL the fees you’re paying
  7. The fund manager – have they managed through both a growth cycle and a recession?  Is their investment philosophy the same?

Ensuring success

  • Make sure that you keep watching your statements.  Don’t check too frequently, but every quarter, make sure there is movement
  • Spend some time each week teaching yourself about your investments

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