Are Managed Funds For You?
If you’re entirely new to the world of investing (managed funds in particular), then you’ve come to the right place. This blog covers the fundamentals of investing in managed funds to help you learn the basics. We explain the difference between shares and managed funds, active versus passive funds and explain how to decide if actively managed funds are for you.
Investing in managed funds has become easier and easier to do using online platforms like GoalsGetter. But for many people, taking that final step of handing over your hard earned (or saved) cash to someone else to invest for you, can be daunting. So it's a good idea to build your confidence by getting familiar with the fundamentals of managed funds first.
About managed funds
When you invest in a managed fund, a professional fund manager will pool your money with money from other investors and invest it in companies that make up the fund. The types of companies you’re investing in will vary depending on the type of fund. The composition of the fund is determined by the fund manager based on strict criteria for each fund. For example, if you’re investing in the Nikko AM ARK disruptive innovation fund, companies that make up this fund must meet specific criteria for disruptive innovation. As an investor you can pick and choose what types of funds you’d like to invest in by researching the various funds (and their investment criteria) available. You can also simply choose a fund based on the level of risk you are comfortable with and leave the rest to your fund manager.
Once invested, you’ll receive units representing a monetary value - either losing or gaining value based on the fund’s assets. While the value may change, the quantity doesn’t. For example, if you buy 100 units for $100, you’ll still have 100 units – whether their value is $200 or $50 – until you sell or buy. Investing in managed funds is a long term investment strategy, the idea being that the value of your investment increases over time. However, you can change how your money is invested and withdraw all or partial amounts at any time. Some funds are also geared towards providing regular dividends or payouts that can provide you with income over time.
How are shares different to funds?
When you buy a share, you buy a little piece of an asset or company, hoping that it will rise in value. This is considered DIY investing, and although it’s more accessible today for those with a few dollars to spare, this approach relies heavily on your knowledge of individual companies and the share market.
Investing in managed funds offers everyday investors access to a whole world of investments through diversified portfolios, without the time consuming decision making process of investing in shares. A fund manager does the investing on your behalf so you don’t have to worry if you’ve picked the right companies to invest in.
And today, investing in managed funds is equally accessible as investing in Shares through online investment platforms such as GoalsGetter.
Passively versus actively managed funds
There are two approaches to consider within the area of managed funds - an actively managed fund and a passively managed fund.
Actively managed funds involve portfolio managers carefully researching before investing in certain assets they believe will provide the best value. They use their knowledge and expertise to try to beat the market’s average returns and help you benefit from short-term price fluctuations. It’s their job to manage risks and identify opportunities actively.
Passively managed funds are rules-based investments. These funds don’t have a manager actively making investment decisions about moving your money. Instead, there is no qualitative input as they track a particular market index. A passively managed fund is basically on autopilot, and because of this, it can never beat the market.
Is an actively managed fund right for you?
No one has yet invented a crystal ball to predict future market movements accurately, so there is always a trade-off between risk and return. All investments carry risk, and those with high potential long-term returns may have higher short-term risks. However, fund managers regulate risk, so you don’t have to. They are experienced professionals, plugged into detailed, current information, which helps them make timely, informed decisions on your behalf. And, a key benefit of actively managed funds is that they let you access various investment opportunities that you may not otherwise be able to benefit from as an individual investor.
An actively managed fund is for you if:
- You lack the time or knowledge to properly research individual companies to invest in.
- The amount you can invest would be spread too thin to diversify effectively on your own.
- You’re too busy to keep up with the latest regulations, reporting rules and tax obligations.
- You would prefer specialist experts making the investment decisions on your behalf.
Where to get started?
Investing in managed funds is not only for the super-wealthy or most-savviest of investors. With Niko AM and our simple to use investment platform, GoalsGetter, we can help you get started with investing in actively managed funds. You can start with as little as $250 to put towards your first managed fund investment and relax knowing your hard-earned money is in the hands of experienced fund managers, and your risk is optimised to meet your investment goals.
For more information on the fundamentals of investing in managed funds download our free GoalsGetters Guide to Managed Funds.
Choose your funds with GoalsGetter
With our online investment platform, GoalsGetter, you can choose to invest into one or more of 13 retail funds via the Nikko AM NZ Investment Scheme. This range provides plenty of options, whether you want a slow and steady fixed income with bonds, exciting investment in cutting edge innovation with our ARK fund, or something balanced in between.