What you need to know about managed funds
If you're thinking of investing your money into a wealth-creation strategy, there are two main routes you can choose to go down. You can have your investments controlled professionally by a fund manager or you can do it yourself.
You can have your investments controlled professionally by a fund manager or you can do it yourself.
For instance, to increase your superannuation savings, a managed fund will decide what type of investment strategy you use, paying dividends over a period of time. Alternatively, you can opt for a self-managed super fund (or SMSF) and take full control over your investments and administration.
Either way, you're likely to invest in property and shares as a long-term strategy, while cash and fixed-interest deposits provide a short- to medium-term approach.
Choosing which route you take is a big decision. Direct investment is a larger commitment and requires an intricate knowledge of the economic landscape, as well as your various investment opportunities and markets. A managed fund, too, has plenty of benefits, as you pool your funds with others to increase your investment potential.
To make the best decision, you'll need to know a little more about both, starting with the advantages of a managed fund.
The benefits of a managed fund
There are managed funds of all shapes and sizes all over Australia, and the bulk of money (including superannuation) is invested in this way.
These funds specialise in different industries and asset classes, as well as being situated in different locations, meaning you have a good range of options to choose from. Once you find a managed fund that suits you and your investment intentions, the advantages to you are:
1) Access to a diverse portfolio
Your fund manager will invest a pool of money on behalf of you and their other clients. They'll spread that money across the four common asset classes, using their knowledge and experience to create a diverse portfolio with more security.
Many investments will be lower-risk because of their blue-chip nature.
2) Access to blue-chip shares
There could be $50 million to $200 million dollars in this investment pool, allowing a fund manager to put their money into substantial commodities – such as apartment complexes and blue-chip companies. With around 40 to 50 shares in the average portfolio, many investments will be lower-risk because of their blue-chip nature.
3) The use of professional management
Your fund manager will buy and sell shares, rework a portfolio, and act on the way they see the markets moving. Of course, you can do this yourself through direct investment, but there are two important things that a professional fund manager will offer.
The first is discipline, as they act on experience rather than emotion or gut instinct; the second is information, with managers having more time and resources to study market data and spot trends.
Eclipse's Managing Director, Justin Butler, talks you through the specifics in the video below, if you'd like to learn a little more about managed funds:
The disadvantages of a managed fund
Choosing a managed fund over direct investment will relinquish some benefits that come with the latter. In turn, if you opt for a managed fund, expect to have the following disadvantages over doing it yourself:
1) Fees apply
There is a cost that comes with using the professional services of a fund manager, and this differs depending on the managed fund you go with. However, direct investment can also be costly, particularly with an SMSF, so it's a matter of weighing up your options for the best return on investment.
For instance, if you don't have a professional level of knowledge around shares and property market investment, your returns might be higher by using a managed fund. Meanwhile, if you're comfortable with spending the time and knowledge needed for direct investment, you might find you are able to keep more of the income for yourself.
2) Less control
As you'd imagine, you have more control with direct investment over how your money is spent, and less with a managed fund. By going direct, you can buy a particular property or shares in a certain company, while those decisions are left to your fund manager with a managed strategy.
What to ask your financial planner
When discussing investment with your financial planner, and deciding whether they are a fit for your strategy, there's a key question to ask.
Do they have access a broad range of managed funds from different managers, or do they only have a select number of managers' products to offer? After all, some financial planning experts can be limited in their scope depending on who they work for.
As always, this is general information that has not yet been tailored to suit your needs. For more help with your particular investment strategy, the Eclipse team are ready to give you a hand from our offices in the Whitsunday Shire.
Give us a call on (+61) 7 4946 7359, contact our team online or simply pop in and we'll go through your options.