What Type of Fund Is Right for Me?

This is a fundamental component of investment and pension planning. In the first blog post in this series, we looked at what a fund is, what assets are in them, and why they have become central to financial planning. 

But when we look at the market, we see the 5,000 or so funds that are available to you through your pension or investment platform. Before we even select the right fund (see the next blog in this series), we need to consider what type of these myriad funds are the right ones to consider. 

1) Risk Level/Rating 

There are three high level considerations: risk level/rating. The world of investment funds is broken down into risk ratings. What does this mean? 

Investments vary in the chance they have to lose some or part of your money. It usually follows that the more risk you take the better returns you will make. It’s like at the horse races, if you bet at 2-1, you have much less chance of losing your money than the 100 – 1 shot, but your returns are going to be much less desirable. 

We’ll talk in a different blog about this topic, but there is a whole world of research in this area, and top academics have come up with several questionnaires that give you a good idea of what level of risk you are comfortable with, for example, 6 out of 10. Funds are then ranked accordingly, and so you would be looking for funds that were rated 6/10. 

2) Fund Management Style 

Funds are managed by a company and or person, and are broken down by the level of management they offer. Some funds are called ‘actively managed’, and this is where the fund manager will be pro -actively making regular changes in the fund to try and beat the market. Some funds are called ‘passively managed’, which means that they are set up to have a certain breakdown of assets in certain markets, and they are only adjusted occasionally to keep in line with this strategy. You usually pay more for the actively managed funds and so you need to decide if you think the active management is worth it. 

3) Market 

Market can be quite broad in this sense, but refers to the type of industry or location of industries that the fund invests in. You choose the type of fund based on your personal investing philosophy. Which is a fancy way of saying what’s right and important for you. You may just want maximum gains and feel that an American technology fund may be the right type. You may want something very safe and want a UK invested fund. Interesting, there are now a lot of sustainable/ethical funds that you can choose to meet your personal ethics! 

Decide on each of the three topics above and you’ll find a group of funds suitable for you. For example, a risk rated 5, Passive, Low Carbon fund. Check out the next in this blog series to find out how to pick the fund from this new, narrowed list.

At Parker Financial Advice, we offer no plan no fee! Consultations and reviews of your current situation are free, and our fees only come if you decide you want us to set up and manage your plan. It is our mission to make financial advice accessible and available to everyone at all stages of their financial life.