If you were extremely rich, you’d be able to afford a team of private money managers – people who would watch the markets daily and seek out investment opportunities for you.
The good news is that you don’t need to be rich to access this – it’s what fund managers do.
A managed fund is an investment that consists of a pool of funds – $20,000 from you, $50,000 from someone else etc. These funds combine to be in the millions, and are invested by professional money managers.
What we’re good at
Financial Planners are good at being financial planners. We’re not fund managers. Our job is to recommend financial strategies that will help you achieve your long term goals. It’s what we’re good at.
We choose to outsource the actual managing of your money to professional fund managers. It’s their job and it’s what they’re good at.
What a fund manager does
A good investment company has a team of staff who manage your money. Let’s consider a fund that invests in Australian shares.
The fund employs a team of investment analysts. Each analyst may have a different field of expertise i.e. resource stocks, telecommunications companies etc. They have access to a wide range of research on the companies they’re looking at. Due to the size of the funds, they’re able to meet with the key staff of the companies and visit their offices. They’re able to react quickly to company announcements and market movements.
Due to the size of the funds, they’re often able to obtain some cost reductions. For example, the stockbroking rates they’d pay will be far less than what the average investor pays.
The fund invests your money across a range of companies. Some share funds may have a concentrated portfolio of around 20 stocks, others may hold over 100.
Most funds management companies have a disciplined investment structure in place that takes the emotion out of investing. If you or I bought a share and it declined in price, we may be reluctant to sell because we like to think we can always pick ‘winners’. If we sell at a loss, that would be losing!
A fund manager has a process that removes the emotion. They have defined reasons for buying (or selling) a share. If the price declines, they’ll want to see why and if they still believe in the company they’ll generally see the price decline as an opportunity to buy more shares at a cheaper price.
Cast a wider net
There are managed funds available for investments all around the world. Australia has a relatively small share market compared to the rest of the world – we’re less than 2% of global share markets.
It makes sense to invest offshore. You’re able to invest in companies and technologies that aren’t available in Australia. Companies like Nokia and Google are only available on overseas stock markets.
A professional fund manager makes it easy. They usually have analysts all around the world and they’re able to react quickly to market movements and investment opportunities – even when you and I are sleeping.
Different fund managers have different ideas on how to invest your money. A company that may be considered too expensive to buy by one fund manager may be seen as a bargain by another.
Which one is right? They both are.
You may know about the importance of diversification. Even within an asset class we can diversify. Different share managers have different approaches to managing your money. We’ll generally pick managers with different ideas so that when you combine the different portfolios, you have a good mix of investment ideas. They’ll all be ‘right’ at different times – that’s the point of mixing them up.
Outsource what you can
Of course, you could choose to manage your money yourself, investing in shares etc.
But that takes a lot of time, and it’s a big risk. You’re betting that you can invest better than a bunch of professionals.
Many of our clients tell us they’re time poor. If they had more free time they’d spend it with family and friends, they’d use it to indulge in a hobby, they’d take better care of their health and fitness.
So to us, trying to manage your money yourself carries a high amount of risk. We believe there’s value in outsourcing it to professionals. Let us advise you on the right strategies, and let fund managers invest your money. As a result, you can have more free time to do the things you enjoy.