Managed Funds
Types of Managed Funds
- Shares
- Property
- Fixed Interest/Bonds
- The fixed Interest/Bond Fund Investor
- Cash Funds: For CapitalPreservation
- The Share Fund Investor
- Property Trusts
- Fixed Interest/Bond Funds:For Diversification
- Cash
Shares
Investing in a share buys you a piece of ownership of a company. Your share of ownership is also commonly known as your equity in that company. As a shareholder you can make money in two ways; by sharing in the company's profits (usually paid in the form of cash dividend), or by selling the share for more than you paid for it (called a capital gain). Shares don't carry guarantees; you can lose money if the company's share price goes down or if the company stops paying dividends. Selecting which shares are right for your investments is probably the single largest topic of research and analysis in the investment world.
There are different styles of share investment management: Growth, which seeks to identify companies whose earnings are growing at an above-average market rate, and buy them at reasonable prices; and Value, which seeks to identify undervalued or out-of-favor stocks that offer exceptional long-term potential. Either management style can be appropriate for a retirement investor.
Shares are classified in many ways. You can buy company shares within an industry sector (such as banking, mining or technology), within a region (such as international or domestic), by the size of their capitalization (large and small), or by a number of other parameters.
One of the main reasons to invest in a managed fund is to benefit from the professional investment management the fund provides. So once you've established a type of share investment that meets your investment criteria, you can select a managed fund that matches your objectives without having to select the individual shares yourself.
Share funds are appropriate for the investor whose objectives are long-term and who has the diligence to stick to a plan with those long-term goals in mind. The increased risk of the stock market gets smaller and smaller with longer periods of time, enabling investors to aim for higher return potential when their investment timelines are five years or longer.
Even very conservative investors should evaluate the superior growth characteristics historically provided by managed share funds as an investment class.
Property
Property trusts allow you to pool your money in funds invested the property market, with the potential for both income and growth. Property trusts are not capital guaranteed, so their value changes with market variations and can increase or decrease in value.
The security of a property trust investment depends on the type of trust, the properties it holds and its investment policy. Some property trusts borrow funds to invest. A high borrowing(or gearing) level increase the possible amount of capital gain or capital loss.
There are several types of property trusts. Listed property trusts are listed on the stock exchange and are bought and sold through a stockbroker. As with shares, their value is mainly determined by the market and can rise and fall.
Unlisted property trusts directly own and manage real estate and are not listed on the stock exchange. Property securities trust are unlisted. Your money is pooled for investment in listed property-related securities, such as shares and trust units.
Fixed Interest/Bonds
When you buy a bond, you are essentially making a loan. The organization to which you lend your money - typically a company, government or government agency - promises to repay the full amount of your loan on a specific date. Until that time, it pays you a stated rate of interest on the use of your money. Because their income payments are fixed, bonds are also known as fixed-interest investments.
Bonds have different maturity dates - the date on which a bond issuer must repay the money borrowed. Maturity dates range anywhere from a few years to as many as thirty years.
Bonds tend to carry less risk (and offer lower returns) than shares. Bonds issued by corporations tend to be riskier - and therefore higher Yielding - than those issued by governments simply because of the quality of the promise to repay the original loan.
Bond values go up or down as a result of changes in interest rates. When interest rates drop, bond prices tend to climb; when rates rise, bond prices often fall. Here's why: Say you purchase a ,000 bond when rates are 7%. That bond would provide 0 annually. If rates rise to 8%, a new bond purchased at this rate would pay 0. Because your 7% bond provides 0 less income per year, it's now less valuable and its price tends to go down. The opposite would be true if interest rates declined.
Fixed Interest/Bond funds are appropriate for retirement investors who are uncomfortable investing solely in shares - since a retirement investment that includes both share funds and fixed interest/bond funds should fluctuate less than a portfolio of 100% shares.
Also, as investors near retirement they often shift a higher portion of their investment into fixed interest/bonds funds because these funds tend to preserve principal better than share funds. This, in effect, lessens their portfolio's risk as they near retirement.
The Fixed Interest/Bond Fund Investor
Fixed Interest/Bond funds are appropriate for retirement investors who are uncomfortable investing solely in shares - since a retirement investment that includes both share funds and fixed interest/bond funds should fluctuate less than a portfolio of 100% shares.
Also, as investors near retirement they often shift a higher portion of their investment into fixed interest/bonds funds because these funds tend to preserve principal better than share funds. This, in effect, lessens their portfolio's risk as they near retirement.
Cash Funds: For capital Preservation
Cash investments seek to maintain a stable principal. Because they offer little growth potential, cash invest-ments won't protect your assets against the biting effects of inflation and taxes. Consequently, they should not be used as the primary investments for building a nest egg.
The Share Fund Investor
Share funds are appropriate for the investor whose objectives are long-term and who has the diligence to stick to a plan with those long-term goals in mind. The increased risk of the stock market gets smaller and smaller with longer periods of time, enabling investors to aim for higher return potential when their investment timelines are five years or longer.
Even very conservative investors should evaluate the superior growth characteristics historically provided by managed share funds as an investment class.
Property Trusts
There are several types of property trusts. Listed property trusts are listed on the stock exchange and are bought and sold through a stockbroker. As with shares, their value is mainly determined by the market and can rise and fall.
Unlisted property trusts directly own and manage real estate and are not listed on the stock exchange. Property securities trust are unlisted. Your money is pooled for investment in listed property-related securities, such as shares and trust units.
Fixed Interest/Bond Funds: For Diversification
These managed funds invest in a large group of government, semi government and/or corporate bonds.
More conservative than share funds, they seek current income in the form of regular distributions. Their unit price will fluctuate with changes in interest rates and other market conditions. Generally, funds that invest in Government securities have lower risk, and therefore lower returns, than those that invest in corporate bonds.
Cash
The objective of Cash securities - which include money market investments, term deposits, interest bearing deposits and bank bills - is to protect the money invested in them. As a result, their values do not fluctuate as widely as those of Shares, Fixed Interest/Bonds or Property. The low risk of these investments, however, comes at a price: lower long term rates of return than Shares, Fixed Interest/Bonds or Property. But that's also why Cash securities are considered a less volatile place to put emergency funds or to park money for the short term.
Cash investments seek to maintain a stable principal. Because they offer little growth potential, cash investments won't protect your assets against the biting effects of inflation and taxes. Consequently, they should not be used as the primary investments for building a nest egg.