4 investment vehicles you should consider
If you need to get from A to B, you’ll buy the right vehicle for the purpose. Maybe a car, or a van for a growing family, perhaps even a motorcycle! It’s the same with investing – you’ve got options, and you can choose the one that suits you and your family best. The four main investment vehicles you can choose from are Mutual Funds, Exchange Traded Funds, Stock Portfolios and a Managed Portfolio. There’s a lot of nuance involved in investing. From making the right decisions, to choosing the types of investments – there’s a plethora of ways to go about it. But how do you know you’re choosing the right option?
We’re taking a quick look at Mutual Funds, Exchange Traded Funds, Stock Portfolios and a glance at a Managed Portfolio. Don’t let the jargon throw you off, we’re making money matters simple again and laying it all out below. When you understand the different vehicles, you can find the best fit for you.
First things first:
There’s always risk when it comes to investing – and how you build your investment portfolio depends on how you handle that risk. It’s not just personal preference that determines your stomach for risk, but also your goals and why you’re investing in the first place. You may be willing to take more risks on savings, for example, but a little less when it comes to your retirement investments. Whatever your risk-style, we suggest getting to know yourself, and laying out your strategy before getting too far along the investment pathway. Understand what you’re trying to achieve, and how you might get there – map it out. This way, your investing will be a lot more hit than miss.
And of course, it’s important to note that the longer you leave your investments, the better they’ll serve your financial aspirations. So risky or not, be sure to remember that this is not a short game, but a long-haul commitment to growing your financial wealth.
As a side note, if you’re reading this and thinking ‘maybe I should get a professional involved’ – read here for a look at how to choose the right fund manager for you.
Types of Investments:
Mutual funds are managed by a professional money manager that decides what gets bought and what gets sold according to the fund’s mandate. They generally carry lower risk, but higher fees and are easily accessible through a bank or brokerage account.
Anybody can add mutual funds to their portfolio and you can buy them in very small amounts. They’ve been around a long time and are highly regulated, making them a safe, audited structure that is highly transparent.
The downside is that mutual funds are generally expensive, especially for smaller amounts. A mutual fund is managed according to the mandate of the fund, for example a balanced fund or 100% equity, which means that it is not managed with you, the client in mind, but rather the fund. This means you’ll really need to do your homework, or seek out advice before purchasing.
Exchange Traded Funds
Exchange Traded Funds, or ETFs, track a certain index (like the S&P 500) and give returns to the investor on that. They are a very cheap and cost-effective way to access a broad market or index but do not have the layer of professional management that a mutual fund offers.
ETFs come with much lower fees and have become very specialized in recent years. They are a good option for retail investors as they are easily accessible and have a thorough track record.
Because an ETF is not managed, they are actually passive investments tracking an index, you might not get as good a return as when a professional is selecting the stocks for a portfolio or a fund. You can’t rely on an ETF to be a portfolio, they are just a collection of stocks based on an index. Indexes are not based on what each business is up to or achieving, but simply the size of the business as a percentage of that specific index. You may not want to relying solely on one type of ETF so that your investment portfolio is not weighted in just one industry or market. While ETFs are cheaper, take note that the more exotic ones could be expensive. Also keep your eye out for newly launching managed ETFs that come at a higher fee, but are similar to a mutual fund but packaged differently.
Recent years has seen a monumental leap in retail investors choosing to buy stocks directly from the stock market, or through brokers such as Robinhood. Buying stocks and shares is the most classic way of investing that’s been used for over 5 decades. It’s very cost-effective and allows you to build a portfolio of stocks personalized to you. However, it requires much more research and reading on your part, to make sure you’re picking out the best options for your portfolio.
Buying stocks and shares is cheap and doesn’t carry heavy fees (in some instances, it is even free). You can do it yourself, and if you get it right, could land yourself with some valuable investments.
The Do It Yourself pro that we’ve mentioned has a drawback. When buying stocks and shares yourself, you need to do your homework and choose carefully. We often hear the good stories from people who bought early into major companies. But you don’t often hear the stories about people’s investment going to zero – no one likes to share those! The other negative to this form of investing is that there is no regulator, or anyone for that matter, looking over your shoulder to make sure you’re picking stocks that will serve your financial goals. You’ve really got to be sure you’re making the right choice.
If you’re ready to hand over the reins to a professional that can handle your investments and build your portfolio on your behalf, a managed fund is the way to go. These investment experts spend their days researching and tracking stock markets to choose the best possible options for your portfolio. From your local bank to a boutique investment firm, you can find a professional that will get your wealth growing, while you enjoy life.
Rest easy knowing your investments are in good hands, properly managed and effectively growing. Reaching your financial goals will be made easier as you entrust your portfolio to a pro, that integrally understands what you’re trying to achieve.
A managed fund comes with higher fees and requires thorough research before choosing the right fund manager. Unlike the investment types mentioned already, a managed fund requires a minimum value of investible assets. For example, you’ve got to have more than $750 000 to nab yourself a boutique investment firm to manage your assets.
Here’s a more detailed look at choosing the right fund manager, what to look out for and who to trust.
Whichever path you plot through the world of investing, make sure you’ve got your goals set, your accountability in place, and a keen sense for a little (or a lot of) risk. You’re going to need it!