Seniors across the world usually make a lot of mistakes when making investment decisions. One of the mistakes you are likely to commit is failure to consider important factors when you are choosing an investment fund. The main reason you could make such a mistake is because you are not aware of what exactly you are supposed to look for. And this post intends to help you out. The following are some of the most important factors that you should not fail to consider when you are selecting investment funds.
- The fund’s expenses and fees
According to research, high-cost funds are usually outperformed by low-cost funds every time. Typically, investment firms work on the principle that the high fees they charge are justified and reasonable because of their fund’s higher investment returns. However, this only stacks up in theory but not in reality. It is therefore advisable that you when you are making fund selection, the ‘cost’ should be the primary test because it is what can predict performance in the most reliable manner.
- Passive or active funds
One of the best investment tips for seniors is to purchase passive funds instead of active funds. Active funds are investment funds that are run by the fund managers, and despite the fact that they have large fees and expenses, they usually struggle to perform. Consider choosing passive funds because they usually perform better then active funds. Furthermore, passive funds are cheaper as compared to funds that are actively managed. Active fund managers usually take more risks and go with the latest trends especially when things are not going well. They do this to pursue returns. It’s important to note that when the going is good, the managers of active funds usually do very well. However, the reverse is true and they usually underperform when the going is tough.
- Turnover rate of a fund’s portfolio
Another primary factor senior should consider before selecting an investment fund is the turnover rate of a particular fund’s portfolio. This is what measures how frequent a fund’s manager purchases and, or sells securities. If the turnover rate is high, then it means that the fund’s manager doesn’t hold on the stock for a long time. Even though this may signify active management, it can also lead to very high cost of trading on the other side. This shows a short-term investment. On the contrary, low turnover rates indicate that that the fund manager is holding stocks for a longer time.