Elson Associates - Which Fund?

Which fund is right for me?

A perfectly timed investment would have a reasonable amount of luck attached. When investing in the stockmarket it is wise to view your investment in the medium to long term. Whether you are a cautious or more adventurous investor, history says that over the longer term, stockmarkets will outperform Bank and Building society deposit accounts. With today's low interest rates, inflation will play a large part in reducing the real return of these deposit accounts. So, if you are prepared to accept an element of risk and realise that there will be times when investments will fluctuate in value, returns from stockmarket investments could be exactly what you are looking for.

Here are some key points to consider before investing in funds.

What are your goals?

The starting point when deciding how you are going to invest your money is to get clear on why you are investing. Perhaps you are saving for retirement, a house purchase or even a grandchild. Knowing your goals will help you to filter which investment products are suitable for you and which are not.

What is the time scale?

The length of time you are planning to invest will greatly influence your fund selection. For example, if you are saving for retirement many years into the future you may be more likely to invest in higher risk funds at the start of your investment plan. On the contrary, as you near retirement protecting your nest egg may become a greater priority.

It is important to remember that the majority of funds are considered to be medium to long-term investments. This means that most funds are designed to be held for a minimum of 3-5 years.

What is your tolerance to risk?

Attitude towards risk is an individual decision and is often related to your personal circumstances as well the stage of life you are at. For an overview of a funds volatility, you will find a 1-7 'Risk and Reward Profile' on the Key Investor Information Document (KIID) for the fund. Whilst this indicator is not guaranteed to remain the same and may vary over time, it shows how much a fund's returns have fluctuated based on its historical performance. Alternatively ,for full details of a fund's risks you can view the fund prospectus. This will help you to decide whether a fund is suitably matched to your risk tolerance.

Which asset classes will make up your portfolio?

Choosing the asset classes you wish to invest in is an important step. With equities, property, bonds and commodities all being investment possibilities, the combination of these needs to be carefully considered. An important point to remember when building your portfolio is that an equal spread of money into different asset classes doesn't necessarily mean an equal spread of risk. For example, if an investor was to invest 50% of their money in equities and 50% in bonds, this would not necessarily mean that the risk is spread equally due to the fact that equities are generally considered higher risk than bonds. When adding an asset class to your portfolio you need to consider the change in exposure that will result. For example, an investor who favours a lower risk approach may be concerned by over-exposure to areas such as emerging markets.

It is important to decide what portion of a portfolio will consist of cash. Whilst having cash in a portfolio may reduce the returns of a market upturn compared to having 100% of the portfolio invested in the market, it can serve to reduce losses during a downturn. Additionally, having access to cash may reduce the need to sell funds. For example, if the markets suffer a decline, an investor could withdraw money from their cash holding instead of selling investment funds.

Which fund(s)?

Your answers to the previous four questions will shape your decision as to which fund(s) are suitable for you. With access to over 5,000 funds, private investors such as yourself have more choice than ever. So before you make your decision there are some further questions to consider. For instance, what is the ongoing charge of the fund and does its performance warrant such a charge? Who is the fund manager and what is their track record? What are the holdings that make up the fund?

This information and more can be found by visiting the 'Research centre' section of our website. If you require any further assistance or would like more information on particular funds, please get in contact with us and we will be happy to assist you.

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Elson Associates does not offer advice as to the suitability of investments. If you are unsure whether an investment is suitable for you, you should obtain expert advice. Past performance of an investment is not necessarily a guide to its performance in the future. The value of investments or income from them may go down as well as up. You may not necessarily get back the amount you invested.

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