Types of Managed Funds
Picking a managed fund can be confusing. There are thousands on offer in Australia and it’s hard to know where to start. Firstly, you should have a basic understanding about the types of managed funds available and then you need to figure out what your goals are. Once you’ve done this, you’ll be able to narrow down your search to a particular type of fund and life will be much easier! There are more types of funds out there than reality-star-wannabes – rather than list them all, here are two key distinctions:
1) Single-sector funds
These invest in a single asset class (ie: one type of investment), generally defined as:
- Fixed interest securities (such as government bonds);
- Australian shares;
- International shares.
Even if you pick a fund that focuses on one of these asset classes, you’ll still be diversifying across a number of investments – i.e. an Australian share fund may invest in a number of different companies across different industries.
2) Multi-sector (or diversified) funds
Multi-sector funds invest across a range of asset classes. They could be:
- Growth (a growth fund usually holds around 75% of its assets in shares and the rest in property or fixed interest);
- Balanced (a balanced fund usually holds a more even spread of assets – perhaps around 60% in shares and 40% in property and fixed interest);
- Conservative (a conservative fund usually holds around 20-40% of its assets in shares with the rest in property and fixed interest).
The Australian Securities and Investments Commission consumer website MoneySmart summarises the four different investment types of fund (Growth, Balanced, Conservative and Cash) and reasonable expected rates of return for each option. Just scroll down to the ‘Mixed asset managed funds’ section.
Which managed fund type for you?
Before you invest you need to determine what you want to achieve. Do you want to invest for long term or will you need the money in five years time? What other investments do you have?
The needs of a 30 year old female are quite different from a 60 year old preparing to retire. If you’re investing for the long term it may mean you can invest more aggressively in order to get higher returns as you have time to withstand any volatile markets.
You may be interested in Australian shares, investing ethically or investing as tax effectively as you can. It’s up to you.
There are plenty of financial institutions that have investor profile tools online that allow you to determine your investor profile (e.g. defensive, aggressive, etc.) then suggests an asset allocation for you.
Use MoneySmart’s compound interest calculator to see the power of leaving your investments to work by themselves over time and to set some goals.
This section of MoneySmart gives you an idea as to the relationship between risk and reward.
Find a financial adviser
Check out the Australian Securities and Investments Commission’s website MoneySmart – it has loads of great information about obtaining personal financial advice and finding a qualified financial adviser. Experts often suggest you find an adviser who charges by the hour instead of receiving a commission.
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