Why invest using funds?

By SO Wan

Why invest using funds? When should you consider funds? You may heard of or experience these problems with funds : high fees and charges, poor or mediocre returns. Well, we know all these problems. One of reasons for investing using funds is global investment. If you believe there is always a bull market somewhere, how do you put this idea into practice? If you have access to markets with breadth and depth of choices, e.g. US and UK market, congratulations, you are one of the lucky investors. However there are many more investors who cannot access these markets directly due to limitations imposed by laws and/or financial reasons. For them, global investing via funds is the only viable option.

Therefore when should you invest using funds?

When you are forced to. Your retirement plans may make it a requirement to invest in funds. It is better to put retirement money to work if you think the investments may yield positive returns after adjusting expenses. This is true even when the risk-adjusted returns are small. If you are thinking of whether to contribute to your retirement plans voluntarily, consider the incentives, e.g. contribution by your employer and/or government, tax saving.
When your investments outside funds are not doing well. These investments could be stocks, properties, etc. If you have access to funds which have returns over or on par with the returns of underlying benchmark indices, it is easy to make the decision to invest in these funds. However when the situation is less than ideal, e.g. funds underperform the indices, consider lost of returns if you do not invest. Again the main premise is it is better to put money to work.
When you believe there are bull markets outside your reach. You may not have access these markets through your brokerage accounts. You may not have knowledge, skills, and/or time in evaluating opportunities in these markets. It is time to let the specialists to do the work for you. Even when the performance of these specialists are not impressive, you know a rising tide lift all boats.
When you are a top-down investor. If you do not like chores of evaluating stocks and would like to concentrate on big picutre, then invest using funds may be a better way to invest for you.

All right, now you are convinced investing using funds are appropriate for certain conditions. How do you choose which funds to invest? Some depend on the advice of their trusted sources. Some use past performance. Some use fundamental analysis, e.g. GDP growth, inflation, price earning ratio. How about technical analysis for funds? Technical analysis is an excellent tool to time your entries, buy or sell, even when you are long-term investors(you just use charts of longer time frame). To get your feet wet, how about following the advice of Jim Sinclair, a successful commodity trader/investor and business executive?

Simple, effective technical analysis by Jim Sinclair

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Disclaimer: Please consult your investment adviser before acting on information on this page.