MONEY MATTERS MONDAY 1st OCTOBER 2018
Managed Funds Great for Small Investors
The three basic types of investment are fixed interest, property and shares. Cash and fixed deposits give the lowest returns on average, especially at present. How can small investors gain access to shares and property?
Residential and commercial property are usually only available in large lumps, often with big borrowings required. Investing in shares requires knowledge and research to work out the best ones and a trading account must be set up with a stock broker.
What makes managed funds desirable as an investment?
Managed funds make the higher returns of shares and property available to small investors, with management by investment professionals. The first Australian managed fund was launched in 1936.
The prospectus began by saying “The needs of the average investor today are safety, a fair income return, and prospects of capital increasing in value”. Little has changed. It explained how the fund accepted small deposits, investing them across many shares to increase security.
Managed funds are an ideal way to save for future school or university fees, the big overseas trip, to buy a business or farm, or just accumulate savings for an unknown future purpose, earning better returns while retaining access. Funds allow withdrawals at any time.
They are most suited to saving for the things people shouldn’t borrow for, when interest on a loan would not be tax deductible. Superannuation is tax sheltered and a great way to save for retirement but savings are not accessible until then.
Many funds have averaged around ten per cent per annum for the last ten years after management fees, about three times the rates on bank deposits over the period. However managed funds are more variable, especially short term.
People without a deposit can start a managed fund savings plan with as little as $1,000 plus $100 monthly contribution. They can switch between investments at little or no cost. Borrowings can be added to the savings plan if desired.
Access to cash when you need it
Withdrawals can be one-off or fixed monthly amounts to provide cashflow, such as to pay school fees. Managed funds may invest only in property or shares, or a mix of investments. Diversified funds can be conservative, balanced or adventurous.
Professional fund managers charge up to one per cent per annum and aim to earn returns better than market averages after fees. Some funds beat the averages and some don’t so professional advice can help choose the best funds.
The more complex financial instruments being traded today make it harder for small investors to keep up with the averages. Managed funds enable them to earn similar returns to the professionals.
This is general advice and should not be treated as personal advice. Russell Tym is an authorised representative of MoneyLink Financial Planning Pty Ltd ASFL No: 247360.
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