Managing your capital

31 March 2016

Investing in funds: what to look out for

Which saver has never thought about investing?

Depending on your objectives, it is certainly tempting to take the plunge… provided, of course, that you:

  • already have savings set aside for unexpected expenses
  • have a specific goal and a sufficiently long investment horizon
  • take your risk profile into account
  • ideally have some knowledge and experience regarding investments.

Shares, bonds, investment funds… there are many ways to invest.

More and more investors tend to prefer funds these days. Why? What should you look out for? Some questions and answers!

Why are funds so popular?

It is not easy to buy the right shares and bonds at the right time. Nor is it easy to build a balanced portfolio and keep track of it on a daily basis. Funds allow you to invest in a diversified portfolio and to do so with a small amount of money. The fund management team selects the underlying assets and closely monitors their performance. In a nutshell, diversification and professional management are what make funds so popular.

How do I build a balanced portfolio?

Depending on your risk profile, you can build a diversified portfolio made up of various funds (share funds, bond funds, mixed funds... ). Diversification should be realised at the asset level but also at the sector and geographic level. Once again it is important to be aware of your risk profile and to make the right decision at the right time. This is why investors rely on their financial adviser (insofar as this service is offered by your selected financial institution).

Which approach should I take?

Another important consideration when choosing to invest in funds is the difference between open and closed architecture.

Certain banks work with a closed architecture, giving priority to so-called "in-house" funds.

Others have developed an open architecture and propose other funds besides their own. But even amongst those offering an open architecture, there are subtle differences you should be aware of. Some offer an almost limitless number of funds and favour neutrality and choice for the client. Others, however, go in search of the funds that appear to have the best potential, offered by a select group of partners. In such an open guided architecture, quality and neutrality take precedence over choice.