How to pick a winning investment fund
Getting into the world of investment can be daunting. From working out your attitude to risk to diversifying your portfolio and looking at the charges involved, Moneywise TV gives you a few pointers to get you started.
With more than 2000 investment funds on offer, finding the right one for your circumstances can be tricky
Before you even start looking at funds you need work out how comfortable you are with risk.
Think about how long you are prepared – and able, to tie up your money and whether you are prepared to risk your money in the name of bigger returns. The general advice is that you should invest for a minimum of five years to give yourself time to ride out any volatile periods.
As a rough rule, gilts and corporate bonds represent the smallest risk. How much geographical spread you then have will determine how risky your portfolio is. UK funds should make up the basis of most investment portfolios, with large companies theoretically posing less risk. Emerging markets countries in Latin America and China are some of the riskiest equities but then again may provide some of the best returns.
Other elements of a portfolio might include equally risky commodities and property.
You might think the easiest way to avoid risk is to just not invest in the more volatile sectors but by investing in a bit of everything you get to spread your bets. That means when one area is performing badly it should hopefully be evened out by one that is doing very well.
Geographically split your investments 50/50 between the UK and the rest of the world or about 40:60 for bigger potential gains – but also a bigger potential risk.
Go online to research specific funds and compare their performance. Fund factsheets can also help. They display information on a fund's performance, charges and it's mandate or investment strategy. Our sister website iii.co.uk has all the information you need to make the right choices.
Always check a fund's charges first and don't be fooled into thinking a per cent or two won't make a difference. Look at the TER or total expense ratio to see how expensive it really is. This combines all the costs together bar dealing charges.
Buying from discount brokers, fund supermarkets – or indeed interactive investor - are the cheapest methods but you have to be prepared to buy without advice. Buying direct from the fund company is the most expensive route
You can call the fund manager's investor telephone line with any queries you have but if you still feel unsure Moneywise would always recommend seeking advice from an independent financial adviser.