How do you choose a fund?

cashbackproblems

Hi

I have recently been looking at mid term funds to invest in via HL, am willing to take medium risk and hold for 3-5 years +, making monthly payments. I was wondering how people pick a fund and whether its best to invest 1/2k in a range of funds or just one?

The ones iv been looking at so far are

http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-ftse-all-share-index-inst-accumulation

http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/a/aberdeen-emerging-markets-accumulation

http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/i/invesco-perpetual-high-income-accumulation (this is availble in bonds or equities. What is the difference?)

thanks

Jonbvn

3-5 years is too short a period.

Cautious_Investor_3

Hi

A few observations:

1. Investing in equities for a period of less than five years is generally not thought to be sensible, you really need a time horizon of five years plus

2. I'd carry on doing a bit more reseearch, even maybe see an IFA. Your question about the difference between bonds and equities show to me that you are probably not ready to start to invest. A golden rule is not to invest in things you don't understand.

The Cautious Investor

Reaper

When you are ready to research funds see post 2 here:
https://forums.moneysavingexpert.com/discussion/875119

dunstonh

3-5 years is too short a period.

especially for a monthly payment. Typically 10-15 years is around the minimum time for monthly to really be able to work for you.

I was wondering how people pick a fund and whether its best to invest 1/2k in a range of funds or just one?

Depends on whether you will be an active investor using a strategy or a lazy investor or just hit and hope. It also depends on the amount. With smaller amounts it is often better to use a self balancing portfolio fund. Its not as cheap but at least its diverse and keeps within your risk profile.

Loughton_Monkey

cashbackproblems wrote: »

I have recently been looking at mid term funds to invest in via HL, am willing to take medium risk and hold for 3-5 years +, making monthly payments. I was wondering how people pick a fund and whether its best to invest 1/2k in a range of funds or just one?

Other people pick funds in a variety of ways. I'm not sure you can pick up any real sensible analysis on individual funds.

Just look at the two extremes:

1. A low-income worker with little job security, reckoning on putting £50 a month for the next 3 years in case he loses his job. No other cash, but has heard that Funds do better than savings.

2. A 62 year old, three years from retirement, £2 million stashed away on pensions, ISA's, property, savings, and a 60% pension in the offing. Has just received £2K tax rebate for HMRC error and wants to salt it away to help pay for the retirement cruise.

No. 1. shouldn't be talking about funds at all. Let alone which one. No 2. could be excused for spending 2 minutes looking up his massive portfolio and just bunging it into whatever fund performed best last month.

I guess you are neither of these.

Put 100 of us in a room, and discuss 3 'valid' funds. I think the majority would conclude that putting 1/3rd into each is probably the "right" answer. Now wait a year. Funds A, B, and C will have shown 15%, 25%, and 3% respectively. So would "Fund B" have been the more correct answer?

Deciding on one fund against the other is like having a mouthful of hot food. Whatever you do next is wrong!

terakris

dunstonh wrote: »

its diverse and keeps within your risk profile.

If i could just jump on this as im in a similar situation where im looking into funds atm and while its very interesting, there is a lot of info to take on board for the non-experienced investor.

When you mention risk, i assume it relates to low/cautious, medium, high etc.. as in, how much risk v reward are you willing to take towards your investment v potential return. If you take the last item there, the invesco one for example - how would I know what risk "category" that would come under. IE, do you say generally that investing mostly in the UK is a med-high risk, or is something thats investing in Europe excluding UK a med-high risk... ?

Not after specifics on each fund, but if there is some indicator on those H-L pages (i guess not called Risk Level unless ive missed it lol) that is an easy way to work out the potential risk of each fund it would help

blinko

bonds low risk, foreign countries/emerging economoes and comoodities high risk, economies industrialised medium risk

dunstonh

When you mention risk, i assume it relates to low/cautious, medium, high etc.

Yes. Everyone looks at risk differently and measures it using different scales. Personally I use a 1-10 scale with 1 being cash and 10 being highest risk unit trust. (i.e. you can get higher risk but that is the context of that scale - some use a different context and you need to be ware of the top and bottom. i.e. FT risk ratings are based on equities. So, low risk to them is medium to medium high on a scale with cash as the baseline).

If you take the last item there, the invesco one for example - how would I know what risk "category" that would come under.

Research and experience. Inv Perp high income for example fits at risk 7 on that scale of 1-10.

IE, do you say generally that investing mostly in the UK is a med-high risk, or is something thats investing in Europe excluding UK a med-high risk... ?

You dont just have the country, you have the type of companies you are investing in. Is it small cap, mid cap, large cap or is it more focused on a limited range of companies or sector of business, is that sector more volatile than the general market. Are there potential solvency issues.

Also, within that (and potentially moving overseas) you have to consider political risks and currency risk.

Not after specifics on each fund, but if there is some indicator on those H-L pages (i guess not called Risk Level unless ive missed it lol) that is an easy way to work out the potential risk of each fund it would help

I cant help on the HL data as I dont use it (its not good enough for regulated advice).

With experience you will know the basic risks a sector has but you have to be careful that sector is not an indication of risk. Every fund has its own risk profile and you can get low risk funds and high risk funds in the same sector.

Loughton_Monkey

blinko wrote: »

bonds low risk, foreign countries/emerging economoes and comoodities high risk, economies industrialised medium risk

True.

And more importantly remember

100% of you savings in "Delboy's small-cap leveraged Albanian absolute alpha high income accumulation fund" = Extremely high risk. Don't touch it.

0.1% of your savings in "Delboy's small-cap leveraged Albanian absolute alpha high income accumulation fund" = Very low risk. Worth a punt.

terakris

As always, this site delivers great responses... thanks guys, very interesting :beer: