Investing In Managed Funds – The Advantages & Disadvantages

Once you have all the basics for getting rich in place, the next step is to start getting serious about building your wealth up into something more substantial.

And the next place most Aussie’s turn is investing in managed funds.

Now I’m not totally opposed to the idea of investing in managed funds (in fact it can be a good thing if you don’t have control issues like I do and prefer to invest directly in the share market) but you still need to be aware that not all funds are the same and there are no guarantee’s that they would do any better than you could.

Ok, but this isn’t about me, this is about you and your money.

So is investing in managed funds a good idea?

Actually it is!  (Didn’t think I’d say that did you).

I actually think that managed funds can be a good set and forget type of investment and it will allow you to get easy access to certain types of investing such as international stock market’s, global and local property funds, as well as the usual local share market funds of various levels of risk and income.

And of course, our Superannuation is just one big managed fund anyway.

Now having admitted that it’s a good investment decision, you probably know want to know which ones you should be looking at, whether you should get a balanced fund or high growth, and of course the advantages and disadvantages of investing in one.

Phew, that’s a lot of info, ok here goes.

Advantages of Managed Funds

• You get access to hundreds of different options of investment funds from stocks, bonds, property, or combinations of them all both here in Australia and around the world.
• Your money is pooled with other investors so that the fund manager can larger groups of stocks giving you more diversity.
• Some funds outperform the market.
• You don’t have to do any work yourself, it’s very set and forget.
• Experts (mostly) run the funds to ensure good market and investment decisions.

Disadvantages of Managed Funds

• Fees.  Most funds have entry, exit and sometimes even monthly fee’s.
• No control (apart from choosing the style of investment).
• You need a certain amount of money to start investing (could be as low as $500 but generally around $1,000 or $2,000 to get started).
• Not all funds outperform the market.
• The top rated funds change from year to year leaving investors to ‘chase’ the best performers thus reducing their income (please don’t do this).
• Not easy to access your money in a hurry.
• Not a good short term investment (if you think you’ll need the money within ten years stick to savings accounts instead).

Should You Have Both a Super Account AND Other Managed Funds?

Now since Super accounts are managed funds wouldn’t it make sense that you just invest into your super account rather than open another managed fund?

No.  Keep your Super as a separate account to this fund.  Only because you can’t get access to your super if you need to in an emergency. (But if you’ve got some spare cash, but all means top your super up if you want).

How Much Money Should You Invest In A Managed Fund?

For the average family, around $20,000 is a good minimum.  You can start with much less than this and build up over time though as many funds will allow you to make regular deposits.  The longer you can keep your money in the account the better as it will take advantage of compound interest and make you more lovely money.

What Type Of Managed Fund Should You Invest In?

Obviously this is going to depend on the amount of time you have to invest (you can be more risky the longer you have) but generally I think that you should stick to Australian Balanced Funds by the higher profile fund managers like Colonial First State, B&T, and AMP.

Ring each of them and get some information packs sent to you.  You’ll be surprised at how many there is to choose from!

The reason I like to keep my managed funds more balanced is that frankly these are the ones that do the best year in year out (and especially so in volatile times like we are experiencing now).

Besides if you want to go more risky, you can do that yourself by investing directly in shares (which I’ll cover soon).  That way you can get out at a moment’s notice, something you can’t do with managed funds.