Investing as a beginner can often leave you feeling lost in a sea of information and endless options. You might’ve heard that investment funds are a good place to start since they’re relatively affordable and offer expert management.
However, you’d still need to choose from a wide array of pooled funds available out there. To simplify your decision-making, here are 5 questions to ask when weighing your choices.
1. What are you investing for?
Knowing your goals will help narrow down your options. Are you hoping to achieve a specific milestone like buying a house, or do you simply want to build wealth over the long term?
Your goals will tell you how much money you’ll need and how much time you have to reach that amount. These factors will help you identify investment funds that may realistically get you closer to your targets.
2. How do you feel about risk?
Are you comfortable with the possibility of losing money in exchange for potential growth over time? Your comfort level will determine your risk profile, which you can learn through a risk assessment.
Investment companies and professionals typically use your risk profile to recommend investment funds you can consider.
They are also required to disclose their historical performance so investors can check how well they’ve handled investments especially during periods of difficulty.
3. What types of investment funds are available to you?
With your risk tolerance, goals, time horizon, and budget in mind, you can start listing investment funds that may suit your needs. Understand the different kinds and what they invest in.
Some types to know are mutual funds, Unit Investment Trust Funds (UITFs), and exchange-traded funds. These are further classified according to the assets they contain or their structure.
Generally, investment funds that invest primarily in stocks have higher potential returns but also come with higher risk. Those invested mostly in deposits and fixed-income assets tend to be more stable but offer comparatively lower returns.
There are also investment funds that prioritize a mix of stocks and fixed-income securities, offering a middle ground.
4. Which ones have the best potential to meet your needs?
If you’re still left with a few options to compare, other factors to consider are an investment fund’s historical performance and its prospects for growth.
You’ll find helpful information from the fact sheet of an investment fund. You can take the elimination process a step further by reading up on news or economic conditions that may affect the value of investments within each fund.
5. Are the costs acceptable to you?
Investment funds are managed by professionals and so they come with fees that help keep them running. These fees can eat into your returns over time, so it’s important to understand what you’re paying for.
Check the fees to know if they’re reasonable given what you might earn and the other benefits a managed fund offers, like the time and effort you may save by relying on expert help.
If you’re still undecided, don’t be afraid to seek the advice of authorized professionals.
