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How do I Choose an Investment Fund?

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  • Written By: Lee Flamand
  • Edited By: Lucy Oppenheimer
  • Last Modified Date: 27 July 2018
  • Copyright Protected:
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    Conjecture Corporation
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When choosing an investment fund there are a variety of factors to consider, each of which will be unique to each individual investor. The first thing to consider when choosing an investment fund is your personal financial goal. It is important to continue to reconsider your investment strategy in order to make sure your investments continue to fit well with your long term goals. For instance, if your financial goal is to begin a retirement fund, you will adopt a different investment strategy than someone who is merely trying to grow their money for a short term purpose.

Other factors to consider when buying into an investment fund include your risk tolerance, amount of disposable income, age, and savings goals. Generally, short term investments running from one to two years will be designed to shelter your capital while earning interest. However, the safety that comes with a short term period of investment can be offset by choosing a riskier investment. Mid-term investments tend to be designed to offer a slightly lower degree of security and may offer the opportunity for income growth, along with the chance of capital appreciation. Long term investments are generally designed to tolerate fluctuations and downturns over long periods of time. However, since markets can fluctuate a lot over long periods of time, long term investments can be high risk. They also offer the possibility of generating a much higher rate of return on your investment.

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One of the most common kinds of investment funds is the mutual fund. Mutual funds are collectively pooled capital invested and supervised by a financial professional called a fund manager. The fund manager attempts to maximize returns on the fund’s investment. When looking for a mutual fund, it is important to find one with goals and objectives similar to your own. For example, younger people who expect to have many income earning years ahead of them may be in a position to take on riskier, long term investments.

For short term investors, it may be pertinent to suggest a fund which secures your capital, offering lower risk and a lower level of return on your capital investment. For these investors, money market funds or short term bond funds may be good options. Additionally, those searching for a slightly more risky investment fund may consider funds which pay monthly or quarterly dividends, which allows for concurrent income gain over the course of an investment.

Another well known kind of investment fund is the hedge fund. Hedge funds generally operate by using short selling or “hedging” strategies to offset the risk of potential losses. Alternatively, a hedging strategy may help the investor maximize risk and, in turn, maximize potential profit. These funds are generally open only to wealthy investors who can tolerate high levels of risk. Hedge funds generally involve the buying and selling of investments beyond traditional stocks and shares; they, for example, might involve the buying and selling of debt and commodity goods.

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