Two Golden Rules and Three Essentials of Investing in Funds
Almost everyone wishes to have enough financial resources to cover their expenses and ensure a comfortable lifestyle. A good way to achieve this is by investing in funds. It is easy to become overwhelmed with the information available to an investor, and sometimes the best course of action is to keep the process as simple as possible. Here are two golden rules and three essentials that should be considered before investing in a fund.
The first golden rule is to know your risk profile and have a plan as to how to manage it. Risk profile can be categorized into three profiles – aggressive, moderate and conservative. Finding the right risk profile is paramount to achieving desired returns. A conservative investor should consider diversifying investments with low-risk items such as government bonds or treasury bills. A moderate investor can allocate investments across various market sectors and classes to help balance out any potential losses. Aggressive investors can look at high-risk investments such as stocks, commodities and mutual funds.
The second golden rule is to understand the Fees and Expenses associated with investing in a fund. Fund expenses can range from as low as 0.05% to as high as 3%. It is essential to know the fees and expenses before investing in a fund, as these fees can eat into overall return on investment. Additionally, fund companies may offer additional fees such as account setup fees and other administrative expenses.
The first essential is to do your due diligence when selecting a fund. It is important to research the performance and track record of any fund prior to investing in it. There are a number of online resources available that detail the past performance of funds, such as Morningstar. Additionally, detailed reports are available from fund companies that provide information such as asset allocation and historical performances of the fund.
The second essential is to understand the fund’s objectives. Every investor is unique with different goals and objectives. It is important to understand the objectives of any funds before investing in them. Fund managers may also have specific goals such as growth, income or capital preservation. It is important to understand these goals in order to make an informed decision.
The final essential is to establish a timeline and commit to monitoring the performance of the fund. Not all investments will perform the same over time, and it is important to understand the risk and returns of any fund before investing in them. Additionally, markets are ever-changing, and it is important to monitor the performance of any fund over the long-term and to reassess the performance from time to time.
In conclusion, when investing in funds, it is important to adhere to two golden rules—know your risk profile and understand all associated fees and expenses. Additionally, there are three essentials an investor should consider when investing in a fund—do your due diligence, understand the fund’s objectives, and commit to monitoring the performance. Following these guidelines should help provide an investor with the confidence to start their journey of investing in funds.
