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
- Understand your financial risk profile
- 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
- 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.
- Take those top 3-5 funds and go and download their fund fact sheet
- 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
- Which of your 3-5 funds have lower fees. Phone the call center and ask them ALL the fees you’re paying
- The fund manager – have they managed through both a growth cycle and a recession? Is their investment philosophy the same?
- 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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