2.3.6 Investment funds: how to choose between them

Anthony lets talk about investment funds. When I opened the newspaper at the weekend to the financial section and I look at the thousands of alternative investment funds I can place my money in; I really just don't know where to start, in fact inertia kicks in and I turn over a few pages and read the sport instead. As a personal investor how should I go about deciding which investment funds are the right ones for me?

OK, it's a good question but let's think of it in terms of another consumer product whether it be cars or food or whatever it may be. There's always a bewildering range of products on offer and think about the things that you want to consider. There are some big reputable brands, there are some things that will do the service, or achieve the objective that you are trying to make. So don't be terribly concerned about "Oh, I must have the best performing product at any one time"; Go back to thinking what your aims and objectives are, what is your risk profile? And try to find a product, and there are many of them and a lot of them do the same thing quite frankly Martin; look at the fee structure, and then decide. But don't go through a period of too much angst about whether I've got the best achieving product. Because that will vary from time to time.

So the process is very much along the lines of the model which we have been looking at on this course, which is look at your time horizon, understand risk and your risk appetite, do your research, make your decisions, and invest-don't just stop and do nothing. And then of course there is one final stage isn't there? You don't just sit back, having invested your funds; you continually review them don't you?

Yes, and that's part of the educational process, its part of the learning process, it's part of becoming a better more reliable, more discernable investor.

How often should you be reviewing your investment portfolio?

Well, whenever you choose. It can be weekly, it can be monthly, it can be quarterly.

OK, should that be at the behest of your financial advisor if you have one or should you basically be proactive on the matter?

Well, good financial advisors, a good financial advisor will keep you up to date with some form of written report on your investments. So you should be able to see what has been happening to your investments, what has been making an impact upon your line investments: economic growth rate, interest rates, those sorts of issues. And they'll keep you abreast of what's happening. And then you can make an informed decision about do I retain this investment? Do I take a profit on it? Do I move it into something else and take a loss? Is it providing me with the return that I was anticipating on the day I made that investment.

If you look at trends in recent years, are there any trends in the types of funds people are going for? Is there a flavour of the year or flavour of the month?

Sadly we must remember an old adage in the investment community about savings products are sold, they are not bought. And that I would say sadly is the case. These products tend to be aggressively promoted. From time to time they may be in the field, if one thinks of the obvious examples, over the last fifteen year, technology you know, maybe mining. So they may be aggressively sold and promoted to the investor when really what should happen is the investor chooses the vehicle that he wants to fit his criteria. So that bout of euphoria that emerges from time to time amongst those people who are investing tends to be identified by the investment community and then products are offered to them.

Right.

And how often have we seen, how often have I seen in my career a particularly fashionable area that is sold to the retail investor just at the time when that investment is peaking in terms of its returns offered to those very investors.

The investment bubble just waiting to burst basically.

Well it may not be a bubble but a bubble really by definition is something like a forty year event you know, most excessive euphoria we see leads to bubbles. But certainly a trend that is going out of fashion that the retail investor is attracted to too late in the day because it is taken him to build up his confidence.

But the message that's coming across is that even if you are using a financial advisor to help, to provide advice, that still you have to take your own responsibility when it comes to the final decisions about your investments.

Sadly I really do think that is the case, I think all of us as individuals, however sophisticated we may be, or not, as investors, really have to take responsibility, look at what we are trying to achieve, look at what we are targeting, look at what we need as a pension, and then make some reliable investments on the back of that. And think less about making a killing on the stock market.

Thanks very much.