Saving for Retirement – Choice of Investment Funds

Last time I said I’d look at how to choose which investment funds to invest in, but I think I need to explain a bit about the choice of funds before I do that.

The choice can be vast and quite bewildering. Many have strange and slightly incomprehensible names. All in all it can seem very overwhelming, so lets try to de-mystify it a bit.

 

The choice of Funds can be broken down in a number of ways:

  • Type of asset. By this I mean – bonds, shares, property, cash or maybe even commodities. There are some funds that are known as ‘multi-asset’. These invest in a combination of shares, bonds etc. These are often called ‘Managed Funds’.
  • Geographic region or country. You could have a Fund that invests in shares globally, so anywhere in the world. Or, you could have one that invests in a region, such as Europe, or one that invests in a specific country such as the UK.
  • Industry or Sector. The most common here might be funds that invest in technology companies or in healthcare.
  • What you hope to achieve. By this I mean whether you want your investment fund to give you either Growth or Income. Some Funds will be geared to grow the value of your investment, and some will be more geared to giving you an income in the form of regular payments back to you. Once you reach retirement you might want more income than growth.
  • Size of company. There are funds that specialize in investing in smaller companies, mid sized companies or large companies. Smaller companies have the capacity to grow faster but can also be a lot more volatile and higher risk.
  • Social Responsibility. There are funds that only invest in companies that behave in an ethical or socially responsible way.
  • By the risk you are willing to take. There are funds that call themselves exciting things like Cautious Managed Fund, or Adventurous Managed fund. As the names suggest they are attempting to make sure they match how they manage their fund with the risk you are willing to take. A cautiously managed fund should make sure that it isn’t too volatile – that the ride is a smooth one. An adventurous fund may give you more potential for gains, but may also give you bigger ‘downs’.
  • Absolute Return. These are funds that seek to make a positive absolute return for investors, so essentially to make money. They should be making money regardless of the underlying market condition in the asset class, be it equities, be it bonds, that they primarily are investing in.

 

And then of course there are all the different Fund Management Companies: Artemis, Blackrock, Threadneedle, Jupiter, M&G etc. Each of these fund management groups will offer their own choice of funds. There could be a Blackrock UK Equity Income Fund, or a Jupiter UK Growth Fund.

 

So, as you can see there is no shortage of choice. Next time I will focus on how you choose from this myriad of options.

 

Sarah Pohlinger

23.4.2015