Managed funds: an expert choice for individual investors
When you invest in a managed fund you join other like minded investors to create a large investment 'pool'. This pooling of funds provides much greater investment 'buying power', allowing your 'fund manager' to invest in opportunities often beyond the reach of individual investors.
Investing in a managed fund provides many benefits. Your risk is spread through diversification - not putting all your eggs into one basket. You don't need to invest thousands of dollars to construct a diversified portfolio (as compared with buying shares alone), and with RaboPlus investors can start with as little as $250. There is also less stress as fund managers do most of the work. They track the performance of the assets in the fund. They make the decisions about asset allocation and regularly report to the investors.
Each time you invest in a managed fund you will be issued with 'units'. These units represent your stake in the fund(s). As the price of these units increases, so does the value of your investment, depending on the value of the underlying investments. However, nothing is guaranteed and sometimes they can also reduce in value. Remember, past performance is not a reliable guide for future performance.
Managed funds typically invest in five main asset classes: Australian and international equities, property, fixed interest and cash. Some managed funds may invest in only one of these asset classes, while others, often referred to as 'balanced' or 'multi-sector' funds, can diversify your investment by using a mixture of investments across the asset classes.
Why help yourself to a managed fund?
Diversification
As a single investor with limited investments, poor performance from even one investment may lead to a significant loss. In contrast, pooling funds with other like minded investors allows a fund manager to spread the investment mix, which helps lower investor risk. Additionally, the assets available within a managed fund allow the fund manager to invest beyond the financial capability of the individual investor.
Professional management
As an individual investor, you may not have the time or training to properly analyse all investment opportunities. Yet a fund manager exists precisely for that purpose. A good fund manager possesses the skill and resources to invest your money wisely, saving you the stress associated with research and decision-making.
Asset access
In most cases managed funds offer an ease of access not available in other types of investments. You can gain access and sell managed funds on each business day, making it easy to get to your invested money whenever you wish.
Low minimum investment
RaboPlus funds have an initial investment minimum of only $250. This is in sharp contrast with the initial investment typical of most wholesale managed funds which may require as much as $500,000 per investment into a single fund.
Remember, investment decisions are highly personal. Only you can decide if managed funds are the ideal investment for you. Managed funds are rarely, if ever, a quick return investment and should be considered as part of a medium to longer term strategy. Whilst you have the security of almost constant access to your units if you wish to cash out, a realisation of steady income over a period of years is more realistic than expecting a quick, substantial turn around.
Also consider whether you're comfortable with a fund manager looking after your money. If you prefer to control every detail of your investments, then managed funds are probably not ideal for you. However, if you're comfortable with an investment professional investing money on your behalf, then you might find a managed fund as your ideal means of low-stress investment.
A managed fund is also an investment without any guarantee of gain. As a general rule they are less risky than many other investments, but risk still exists and there is still more risk than investing in certain types of investments, for example cash. There is the chance that you will see little or no return on your investment and that you could actually lose money. Don't mistake a lower risk factor for a risk-free enterprise. Don't invest in a managed fund if you're unwilling to account for that element of risk.
Understanding your unit prices
The number of units you are allocated in any fund represents your stake in that fund. The unit prices for each fund are typically issued each business day. You will find that both 'issue' (buy) price and 'withdrawal' (sell) price are calculated. The issue price is how much each unit will cost when you make (buy) an investment in a fund. The withdrawal price is how much you will receive for each unit when you decide to sell your units from a fund. The difference in value between the issue and withdrawal price is known as the buy/sell spread. This spread typically represents an allowance per unit for the cost of buying assets within the fund; and then the cost of selling assets when a unit holder withdraws units. It is calculated so as not to disadvantage existing unit holders when others enter or leave a fund.
Diversification
The expression 'don't put all your eggs in one basket' is highly applicable to managed funds. By diversifying your investments (effectively spreading your investment across more than one asset class) you can reduce exposure to risk and potentially achieve more consistent returns. Diversification works on the principle that different asset classes perform well at different times.