For the last one or two or three years, interest rates have plummeted, and banks no longer offer deposits with interesting yields, so clients are offered the alternative of investment funds. We will explain the risks associated with it, and how to know if the fund chosen and the manager who decides where your money is invested, is the right one.
Risks related to investment funds
It is important to be realistic: you cannot put your money in an investment fund without being aware that there may be times when you are losing money. This must be told to the client, and do not guarantee that you will make money, as this hides the reality (although it is very possible that, in the medium term, you will make much more money than investing in a guaranteed fund).
We come across profiles of people who have been advised to invest in funds, when they are clearly risk averse, but were sold that “it was a safe investment”. Or, if you need that money in a short time, the mutual fund is not an optimal choice, as it is possible to enter a negative economic cycle, and not have time to recover the investment.
There are several categories such as: fixed income, mixed income (when there is already a variable income component) and variable income. Therefore, the client’s profile must be well known so that he does not enter funds that do not fit his profile.
Which funds and fund managers are best
In our opinion, although many variables have an influence, there are three fundamental elements to consider when choosing which funds to invest your money in, when you know you want to do so:
- That the Management Company of the fund or funds chosen is the best possible. There is a ranking of fund managers, prepared by Morningstar (a recognized source of financial information), which distinguishes the best ones, classifying them by large, medium and small. This is a reliable way of choosing, or at least recognizing, which fund manager is better than another.
- The expenses associated with the funds in which investments are made should be noted and known. They appear in the technical file of each investment fund.
- That the management of the fund is ACTIVE: this means that the investment fund in which we invest is not limited to plagiarizing the reference index (for example, that it does not plagiarize the Ibex, but tries to beat it). In this way, what we would achieve is that when the results are negative, having chosen the best assets within the index, there is not such a bad profitability; and if it has been a good year, we try to improve the result.
To invest in products linked to investment funds, or to get good advice, contact us. Our Savings and Investment Department will help you.
