Australia has a long tradition as a ‘can do’ nation. We improvise, create, and innovate as well as anyone else in the world and we are fiercely proud of our self-sufficiency. That pioneering spirit also drives our desire to develop our own financial independence through hard work and putting our money to work.
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It also means that many of us are attracted to the idea of ‘going it alone’ by investing directly rather than using a managed fund – but is this really the best way to generate wealth in today’s sophisticated investment world?
Here are 5 reasons why a managed fund may be a better option for you.
1. Managed funds can help you manage risk
Investing directly certainly gives you all the autonomy you want, but the other side of that coin is that you carry all the risk yourself too.
When investing directly the amount of money you have to invest will naturally limit how widely you can spread your investment (and in the case of property investment you may even need to borrow money to buy a single property asset).
A managed fund, on the other hand, allows you to pool your funds with other investors to achieve greater ‘buying power’, which enables you to achieve a much wider diversification on every dollar you invest.
Even small investments in a managed fund benefit from the wide spread of assets that they typically hold. Such diversification is one of the key ways to manage risk in an investment program, because you are not ‘putting all your eggs in the one basket’.
2. Managed funds can give you broader access
If you are investing directly and you want to seek greater growth than is available in a bank term deposit, then you can perhaps buy an investment property or some shares on the stock market.
The scope of assets you can invest in, however is generally limited to what you can seek out by yourself in your local real estate market or on the stock exchange. You are also limited by only having your own money to invest in these assets.
A managed fund, however, has the critical mass needed to gain access to the massive range of domestic and international investment opportunities in the vast array of markets around the globe. By pooling with other investors you can participate in this access and expand the possibilities for greater results.
3. Managed funds offer a range of specialised investment skills
If you are on your own, you only have your knowledge to assess opportunities and your labour to perform the necessary research needed to make informed investment choices.
While there is certainly plenty of opportunity to gain valuable investing skills as an individual, you will always be limited by the fact that you ultimately have to do everything yourself.
A managed fund, on the other hand, has a range of investment professionals; each with specialised skills, all working toward the goals of the fund. They have the resources to research widely and relentlessly to seek out the best opportunities.
The pooling of this knowledge and expertise can provide a significant advantage in the quality of assets chosen – without you having to lift a finger.
4. Managed funds can handle all the monitoring and managing so that you don’t have to
Time is a precious resource when it comes to investing. It takes time to monitor and manage a portfolio.Performance needs to be tracked to ensure it is meeting expectation and alternate opportunities need to be reviewed in case a shift in strategy is needed.
Even if you try to reduce this burden by investing in a single large asset like an investment property then there are a range of responsibilities that need to be attended to relating to upkeep and property management, which can take considerable time commitment.
A managed fund has the management capabilities in house to professionally attend to all this, so that you don’t need to spend any time at all. Reporting is handled for you and communicated regularly so that you can monitor results without any time investment.
5. Managed funds can be more cost efficient
A managed fund usually operates on a predictable published fee structure, which covers the cost of all management and investing responsibilities. When you invest directly, however, the costs can vary widely and can potentially be much higher.
In property investment, for example, you have issues like stamp duty, borrowing costs, upkeep costs, rates and managing agent costs. These costs can easily far exceed the costs charged by a managed fund, which means your property investment needs to provide a higher return to counter the extra cost involved.
A simple alternative
If you want to build a diversified portfolio and achieve genuine financial growth and independence, then the efficiency, diversity and economies of scale that managed funds offer can make them an attractive option.
What do you feel is the biggest attraction of investing through managed funds? Join the discussion below.