Take the Client Risk Assessment Profile Questionnaire
All of the investment houses/banks will ask you to answer first this questionnaire before offering you their products. If not, try to ask for one and by answering this set of questions, you will get a picture of your investing objective/goals and your risk profile. This will also be the gauged of the investment company on what type of mutual fund product they will offer you.
Is it for capital preservation or appreciation? What is your net worth? How many years are you investing? How much are you willing to lose? Just remember these rules, the more your risk, of course, the more you can have gains and the longer your time horizon, is likely that you will maximize the funds return potential and lower the risk.
Know The Investment Objectives and Horizon
A good financial adviser and investment solicitor will help you with this. Is it for your child’s education, dream house, or travel? By knowing these objectives, you will be able to assess what funds will suit your investment objectives or goals so that you can trim down your options.
For example, funding a college education 8-15 years from now will likely direct you to equity-based funds that can tolerate short-term fluctuations.
Know The Chosen Fund
Yes, you must read and research for the fund you want to invest in. Read the fund prospectus. Most of the funds have their own website which you can download said prospectus.
What are the things you need to know?
Who are the fund managers?
What fees do they charge and how much?
Again, you can find these things in the fund prospectus or you can read them directly on their websites.
It is like investing in businesses, cooperatives, and franchises; you must know the business and the people behind it first before putting your money to have the confidence that your money is in a good place. Mutual funds have officers too like the Board of the Directors.
Invest with Thy Fund with a Proven Track Record
The Philippine Investment Funds Association (PIFA) lists the performances of their member companies. So it is so easy to check what funds have the best track record for the past years.
Yes, we all know that the past cannot dictate the future but it really makes sense to study their performances so that you know their track record in handling their respective funds. Again, it is the same thing as analyzing a business, you ask yourself, “Is it earning?”
Diversify within Mutual Funds and Trust Funds
Crazy it may seem but I advise you to invest in 3-4 types of funds to diversify, choose a money market fund, where you park short-term cash or emergency fund, or a bond fund for medium-term cash, and an equity fund for long term.
Also, if you plan to use the cash within 1-2 years, put it in a money market fund and if the plan is around 3-5 years, invest in bond or fixed-income funds and if the goal is for the long terms like 6 years and more, invest in equity or stock fund
Also, bonds and equities move in opposite directions most of the time. So it is better to diversify and ride the volatility of the market instead of putting all your cash in one type of fund.
The rule of 100 dictates that the distribution would be 100 less your age equals the percentage of your stocks in your portfolio. So for example, if you are age 30, so your asset allocation would be (100-30) 70% stocks/equity and 30% bond/fixed income.
Diversify Within Asset Classes
We all know that these are all paper assets, so it is better and advisable to diversify your funds to strengthen your portfolio.
There are three major types of assets. First is the paper assets (stocks, mutual funds, bonds) and the second are real estate assets (rental houses) and the third is have a business.
As much possible, minimize cost, some sales load, and management fees are being charged once you started placing your money which is called the entry fee, so if you buy and sell always, try to see if your gain will exceed your cost or is it better for you to just go directly in the stock market?
Fees are hefty because you pay the fund managers to buy and sell securities for you 24/7. So just sit and relax and see your fund grow.
So place a big factor on the cost because a 1-2% fee will make a big difference in the long run. It may cost you millions of Pesos. Make sure also that your chosen fund is beating the market!
Same as investing in the stock market, take advantage of the cost averaging technique where you invest a fixed amount of cash monthly or quarterly. This technique will let you buy more units/shares when the market is down and fewer shares/units when the market is up.
The good thing with this is that you can do this automatically and you can apply for this regular investment plan in your selected investment house/bank. They will just debit your account monthly.
The best investment for me is education. Educate yourself. Be the best financial planner for yourself. After all, it is your money and no one is more concerned with it than you! So while investing in managed funds, try to read financial blogs and books.
Ask for Help
There are many available financial advisors and planners out there that are willing to help you but beware; some of them will be bias on their products. So better find a competent friend and ask for his independent advice or pay an independent financial planner so that you are assured that he is with your side.