Managed Fund Investing for Beginners

Managed fund investing can be a great way to grow your wealth, especially for beginners.

Managed funds are professionally managed investments that pool money from many investors to invest in a variety of assets, such as stocks, bonds, and property.

This diversification can help reduce risk and increase potential returns.

Managed funds can be a low-cost way to invest, with fees typically ranging from 0.2% to 1.5% per annum.

Investing in managed funds can be a hands-off approach, as the fund manager will make the investment decisions for you.

Choosing a managed fund can be a daunting task, especially with thousands of options available. There are five main types of funds to consider: defensive, conservative, balanced, growth, and aggressive.

Each type of fund is based on the proportion of riskier investments it holds, such as shares or commercial property. Understanding the risks and returns of each fund is crucial to making an informed decision.

To choose a fund that meets your needs, consider how long you're investing for and your attitude towards risk. You'll probably find that one type fits best for you.

There are no right or wrong choices, just different options to suit different needs and risk tolerances.

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Managed funds are a portfolio of assets chosen by a fund manager, making it a good way to get started with investing. They research and select the investments for you, and these funds are typically diversified from your very first dollar.

This makes it much easier to spread your risk compared to picking individual shares. Fund managers set up the fund to follow a benchmark index like the S&P/NZ 50 or the S&P 500, which are called ‘index’ funds.

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Managed funds and ETFs are a portfolio of assets chosen by a fund manager, making it a good way to get started with investing as they research and select the investments for you.

These funds are typically diversified from your very first dollar, which makes it much easier to spread your risk compared to picking individual shares. This is especially important for beginners who may not have a lot of investment experience.

Some funds are set up to automatically follow a benchmark index like the S&P/NZ 50 or the S&P 500, which are called 'index' funds. The fund manager sets up the fund to follow the index by buying and holding company shares to match the index, but then is more 'hands off'.

The value of a managed fund is typically calculated only at the end of the day, but ETFs are a bit different. They can be bought and sold throughout a trading day, so their value is determined by what investors are willing to pay for them at a particular time of day.

Managed funds come in various types, each suited to different investment horizons and risk appetites.

There are thousands of managed funds to choose from, making it essential to understand the different types.

A defensive fund is a good option for those who are risk-averse or investing for the short-term.

Conservative funds are another type, typically holding a mix of lower-risk investments like bonds and cash.

Balanced funds are designed for investors who want to spread their risk, holding a mix of growth and defensive investments.

Growth funds, on the other hand, are ideal for those who are willing to take on more risk in pursuit of higher returns.

Aggressive funds are for investors who are comfortable with high levels of risk and are looking for potentially higher returns.

These categories are based on the proportion of riskier investments each fund holds, making it easier to choose the right one for you.

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You can invest in managed funds by holding units in the fund, which can be bought for a set price.

For example, if you invest $5,000 at a unit price of $1, you get 5,000 units.

The unit price reflects the market value of the assets held within the fund, which can change daily.

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This means your units can appreciate or depreciate daily, depending on the rise and fall of the assets' market values.

You may earn income in the form of dividends or interest when the fund makes profits from its assets.

Your fund manager will pay you the income according to a specific schedule, and you can choose to receive it in cash or reinvest it into the fund.

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Single asset managed funds are a type of investment where your money is invested in a single asset class, such as shares, property, or bonds. This can be a good option if you're looking for a straightforward investment with a clear understanding of what you're investing in.

Cash funds invest in very low-risk, short-term investments like money market deposits, government bonds, and bank bills. These investments are typically very stable, but the returns may be lower than other investment options.

Fixed interest or bond funds generally invest in low-risk investments like government bonds, bank bills, or mortgage-backed securities. Some funds may invest in a mix of bonds and can be higher risk, so it's essential to do your research.

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Mortgage funds invest in property loans, which can be high risk, especially if the borrowers can't repay their loans. You'll receive income as long as the borrower pays interest, but your investment doesn't increase in value.

Property funds invest in residential property, commercial property, or property developments. Some property funds are high risk, and you might not be able to withdraw your money at short notice.

Share (equity) funds invest in listed companies in Australia, overseas, or both. These funds offer the potential for higher returns but also come with higher risk.

Alternative investment funds include hedge funds and funds that invest in private equity, derivatives, and commodities. These funds can be high risk, so it's essential to seek financial advice before investing.

Here's a quick summary of the single asset investment options:

Mixed asset investments offer a range of options for investors, allowing you to diversify your portfolio by investing in a mix of assets such as shares, property, cash, and fixed interest.

You can choose from a variety of investment mixes, with different proportions of shares and property to cash or fixed interest. For example, you could opt for a fund that invests around 85% in shares and property, with the rest in cash or fixed interest.

This type of investment mix can provide higher returns, but also comes with higher risk. According to the article, an investment of $10,000 in a fund with this mix could grow to $17,100 after 10 years, with an expected return of 5.5% gross returns before fees and tax. However, this also means you can expect a loss about 5 years in 20.

Alternatively, you could choose a fund that invests around 30% in shares and property, with the rest in cash or fixed interest. This option is considered lower risk, with an expected return of 4.4% gross returns before fees and taxes. An investment of $10,000 in this fund could grow to $15,400 after 10 years.

Here's a summary of the different investment mixes and their characteristics:

Remember, these are just examples, and it's essential to consider your individual circumstances and risk tolerance before making any investment decisions.

Investing over $50,000 gives you access to funds with lower management costs. This is a significant advantage, as it can help you keep more of your hard-earned money.

Lower management costs mean you get to keep more of your returns, which can add up over time.

Investing a substantial amount like this can also provide you with a wider range of investment options, giving you more flexibility to diversify your portfolio.

Active funds have managers who aim to get the best results by choosing investments that they think will beat the market and trading them.

The cost of active funds is generally higher due to the manager's time in researching and trading costs.

Passive funds, on the other hand, simply invest to match a market index, and in turn, its performance.

This approach makes passive funds cheaper, and you'll find them among the lowest-cost funds.

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Investing in managed funds involves holding units in the fund, which can appreciate or depreciate daily based on the market value of the assets held within the fund.

Your units can earn income in the form of dividends or interest when the fund makes profits from its assets, and you may have the option to receive cash or reinvest your income into the fund.

The value of your units will often rise over time, giving you a return and growing your money, but there is always the risk that their value can drop below what you paid for them.

Investment returns can be positive or negative, and the value of your units will follow the ups and downs of the market.

To mitigate this risk, it's essential to diversify your investments by spreading your risk across a wide range of assets.

Here are some key risks to be aware of when investing in funds:

It's also essential to understand the investment style of the fund, such as defensive, which aims to achieve capital stability and provide regular income.

When choosing a fund, consider the level of risk you're willing to take on and the potential returns you're aiming for.

If it's important to you for your money to be invested according to your values, check the investments your fund holds to make sure they're a good fit.

Funds are required to provide a Statement of Investment Policy and Objectives (SIPO) that explains what the fund is trying to achieve.

This document will outline the rules about what the fund can and cannot invest in.

You can contact your fund provider to find out more about their SIPO.

Funds often have a responsible investment policy that shows how they manage environmental, social, or governance risks.

This policy will also indicate whether they exclude certain investments to do so.

Mindful Money can help you understand what investments managed funds hold and whether they align with your values.

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Managed funds charge a range of fees for managing your money, and small differences in fees can have a large impact on your returns. These fees can include establishment fees, contribution fees, management fees and costs, performance fees, and adviser service fees.

The common fees you should check before you invest are establishment fees, which are usually between 0% and 5% of the amount you invest, and contribution fees, which are also usually between 0% to 5%. Management fees and costs are typically between 0.5% and 2.5% per year, and are deducted from your account balance.

Fees reduce the returns of a managed fund, and can also increase in the size of losses as they are charged regardless of whether the fund makes a profit or a loss. You may be able to negotiate the fees you pay with the fund manager or your adviser.

To see the impact of fees on your returns, you can use a managed fund fee calculator. The scheme may also charge you fees for transactions, withdrawals, to change investment options or exit the scheme.

Here are the common fees you should check before you invest:

It's worth noting that paying more does not necessarily get you more, and higher fees paid to your fund manager will cut into your pot of returns.

Managed funds can be a great way to grow your money, but it's essential to understand the different types of investments and their characteristics. You can expect a high return from a fund that invests around 85% in shares and property, with an expected return of 5.5% after 10 years.

The risk associated with this type of fund is high, with a 5-year loss expected in 1 in 20 cases. This is because shares and property can be volatile, meaning their value can fluctuate significantly over time.

To give you a better idea, here are some examples of investment mixes and their expected returns:

As you can see, the expected return and risk associated with each investment mix vary significantly. It's essential to consider your personal risk tolerance and financial goals before investing in a managed fund.

Growing your money with managed funds is a great way to achieve long-term capital growth. A growth investment style looks to achieve capital growth over the long-term.

You can invest in a managed fund with as little as $5,000, which gets you 5,000 units at a unit price of $1. The unit price reflects the market value of the assets held within the fund.

As your fund manager invests in assets, their market values can fluctuate daily, causing your units to appreciate or depreciate accordingly. This means your investment can grow or shrink in value over time.

You can earn income from your managed fund in the form of dividends or interest when the fund makes profits from its assets. This income is often paid out according to a specific schedule.

You have the option to receive this income in cash or reinvest it into the fund, allowing you to own additional units without needing to put in more money. Reinvesting your income can help your investment grow even faster.

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To invest well, it helps to know why you're investing, the type of investor you are, the right mix of investments for you, and the sorts of results you can expect.

Our investor profiler can help you understand what type of investor you are, based on your personality, situation, and the timeframe you're investing for. It will suggest one of five investor types, which match the five broad categories of funds.

Knowing your profile helps you understand which funds to sort through. You can get an idea of what to expect, the typical timeframe you should be investing for, and what your range of returns could be for 90% of the time.

With your investor profile dialled in, you can look at a typical investment mix for your profile to see what sort of fund could suit you best. Your choice of investment mix will determine how much risk you are taking on and drive your results.

You can explore funds with a similar mix on our Smart Investor tool, which covers KiwiSaver and other managed funds, including ETFs. You can sort funds in each category by their investment mix, their fees, and their five-year returns.

Investing in funds has become more accessible, with some platforms allowing you to invest with as little as one cent. Minimum requirements vary depending on the provider you use.

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You can invest in an AMP account and be in to win $5,000. To get started, you'll need to set up a regular or one-off direct debit through MyAMP.

To contribute to your AMP Managed Funds account, simply click on the "Top-up" button and follow the instructions. You can also change or cancel a direct debit by contacting AMP directly.

You can make contributions to your AMP account as little as one cent, thanks to fractionalised funds. However, minimum requirements vary depending on the provider you use.

Investing in an AMP account gives you control over which funds you invest in and when you make withdrawals. You can also explore funds with a similar mix on the Smart Investor tool, which covers KiwiSaver and other managed funds, including ETFs.

To get the most out of your AMP account, it's a good idea to know your investor profile, which can help you understand what type of investor you are and what results you can expect.

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Investing in a managed fund can be a great way to grow your wealth, but it's essential to understand how performance and withdrawal work.

The performance of a managed fund is typically measured by its returns, which can be compared to a benchmark index, such as the S&P/ASX 200. This helps investors gauge whether the fund is outperforming or underperforming the market.

Investors can withdraw their money from a managed fund at any time, but be aware that there may be fees associated with early withdrawal. For example, some funds charge a 1% exit fee if you withdraw within the first year.

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Tracking your performance is a crucial part of managing your investments. You should receive a performance report from your fund manager at least once every 12 months.

These reports are a great opportunity to see how your investment is doing and whether it's still on track to meet your financial goals. It's essential to read them carefully to make informed decisions about your investments.

You can use the performance reports to understand how your investment is performing and make adjustments as needed. This will help you stay on top of your investments and make the most of your money.

Here are some key things to look for in your performance reports:

By regularly reviewing your performance reports, you can make informed decisions about your investments and stay on track to meet your financial goals.

Withdrawing your money from a managed fund can be a bit tricky, but understanding the rules can help.

Some managed funds have fees or restrictions on when you can withdraw your money, so it's essential to check the fund's PDS for information on withdrawal rights.

You won't be able to withdraw your money until a certain point in time, which can be as long as 12 months after your investment.

Distributions like income payments might continue from a frozen fund, but you might not be able to access your principal investment.

If you're having trouble withdrawing your money beyond the stated fund restrictions, you can complain to the fund for assistance.

Frozen Account Withdrawals can be a frustrating experience, especially if you need access to your money quickly. Some managed funds may freeze withdrawals to protect all investors' investments.

You can find information on withdrawal rights in the fund's PDS, which outlines the fund's restrictions and rules. If you're having trouble withdrawing your money beyond the stated fund restrictions, you can complain.

If your fund is frozen and you're struggling to pay bills, you may be eligible for a hardship withdrawal. To qualify, you'll need to meet specific criteria, such as being unable to meet reasonable living expenses or being unemployed for at least three months.

The fund manager may approve a hardship withdrawal if you meet these criteria, allowing you to withdraw up to $100,000 per calendar year, with a maximum of four withdrawals per year.

Here are the hardship withdrawal criteria:

A managed fund can be a great way to invest your money, but like any investment, it's not without its pros and cons.

One of the main advantages of a managed fund is that a professional fund manager researches, chooses and monitors investments on your behalf, making it easier to invest safely and effectively.

You can also put in money whenever you want to and withdraw it easily, making it a liquid investment option.

Here are some key benefits of a managed fund:

Overall, a managed fund can provide you with access to a range of investments and expert management, making it a great option for those who want to invest their money without having to do it all themselves.

A professional fund manager researches, chooses and monitors investments on your behalf. This can be a big relief, especially for those who don't have the time or knowledge to make informed investment decisions.

You can put in money whenever you want to and also withdraw money easily. This liquidity is a major advantage of managed funds.

Your money is pooled with other investors, making it easier to invest safely by spreading your investments across a range of funds and assets. This diversification can help mitigate the risk of certain assets performing poorly.

With so many funds to choose from, you can easily find one that suits your goals and attitude to risk. You can opt for actively managed funds or those that track an index.

It's easy to get started with a small amount of money. This makes managed funds a great option for those who are new to investing.

Administration and taxes are taken care of for you. This can save you a lot of time and hassle.

Here are some of the key benefits of managed funds:

The tax structure of funds that are PIEs (portfolio investment entities) is lower, at a maximum of 28%. This is compared to buying investments directly, where investors are taxed at higher resident withholding tax (RWT) rates, which can be 33% or even 39%.

Investing in a managed fund can have its downsides. You don't have control over every investment decision, as the fund manager makes choices on your behalf.

Fees are another consideration. The annual management fee can vary greatly, depending on the fund manager and type of fund. You can find more information about fees on the Financial Markets Authority website.

Investment returns are never guaranteed, just like with any other form of investing.

Here are some key points to keep in mind: