DIY Investor Magazine
/
2015 Issue
8
You’ve joined the gym, been on the wagon for
(some of) January and it’s now time to deliver
on that resolution to take control of your financial
affairs. Steve Haysom looks at some of the
options available to those considering investment
funds.
An important first step for the DIY investor is to
construct your own financial plan. Before you
start selecting funds, that means deciding just
what your investment goals are, deciding on
your investment horizon, and perhaps most
importantly making a judgement on the level of
risk are you able to accept.
As rule of thumb, the further away your objective,
whether that be retirement, buying a home or
paying for children’s university, the more risk you
can accept in your portfolio. After all, you have
longer to smooth out returns and make up for
losses. But it’s always important you can sleep
at night - never take on more risk than you are
comfortable with.
However wedded you are to self-directed
investing, this may be the point at which you
consider taking some professional advice.
Alternatively, you could try one of the online
platforms that will assess your risk tolerance and
suggest suitable product types.
Allocating different asset types to help meet you
objectives and risk and diversifying your
portfolio are key tasks for DIY Investors. Asset
classes behave differently as conditions
change. By building a diversified portfolio you
can protect against market volatility and
ensure you benefit from growth stories wherever
they occur.
Consequently, a well constructed portfolio
will offer exposure to different shares, bonds,
markets and sectors.That can sometimes be
difficult for investors to achieve – especially when
they are starting out and beginning to build that
portfolio.
Fortunately funds offer a solution since each one
represents a diversified portfolio in themselves.
If you decide that investment funds are going to
form at least part of your portfolio construction,
there’s a wide choice available that can help you
to achieve your goals.
TYPES OF INVESTMENT FUNDS
Funds are sometimes known as ‘collectives’ which
pool funds to invest in a range of underlying
assets. That wide choice available ranges from
funds actively managed by professionals, backed
up by teams of analysts, to those that simply track
an index or market.
These trackers follow popular markets such as the
FTSE 100 or Dow, emerging markets and
even commodities, currency and property. Look
out for the different types of active or passive
management available. These might be
Active Management
where the fund manager
builds and adjusts a portfolio in order to
meet a fund’s stated objectives.
Absolute Return
which tend not to be asset
class restricted but aim to achieve positive returns
irrespective of market conditions.
Multi-Asset
which offer exposure to different
asset classes.
Fund of Funds
which invest in other collective
funds in order to benefit from the best investment
management out there.
Trackers
which passively match the performance
of a given market or index.
STRONGER TOGETHER
DIY INVESTOR MAGAZINE’S INTRODUCTION TO SETTING
OBJECTIVES AND SELECTING INVESTMENT FUNDS
