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What is the difference between a Managed Fund and personal investment in Shares? Where do I start with my Investments? Managed Funds VS Share Market.

These are the kinds of questions that most Australian’s face when looking at ways of investing their money. This article is intended to give you a breakdown of what Managed Funds are and the pro’s and con’s associated compared to investing in the ASX on your own.

What is a Managed Fund?

Put simply, it is an investment that is managed by a financial expert/team, or qualified individual who’s job is too utilise the money within the Managed Fund for the sole purpose of providing a return on investment.

Managed funds work on the basis that each fund has a particular goal or desired rish factor. Some funds are high risk with potential for higher returns, while others are low risk managed funds and in turn most likely provide stable yet low returns.

The investment house/individual you choose to go with, for instance Colonial First State Managed Funds will decide what risk category your fund falls under, and the percentage split of what the fund will invest in. The purpose of splitting the investment areas is to diversify the investment as a whole and allow it to grow without to much correlation to any one investment area.

An example of the split can be the following;

• 25% Australian Shares
• 20% Cash
• 20% US Shares
• 35% Bonds

This split up shows that a managed fund is diversified amongst multiple assets - with the major share (35% in bonds) that are secure and wont lose money. This would probably be considered small to medium risk.

Why are Managed Funds popular?

Managed funds are popular because people don’t need to make their own decisions when investing. They rely on the fact that an established market leading investment house will do so for them. Also there is the following reasons;

1. Its simple to diversify your investments. The investment house does this for you with the split up of the fund you buy into. Whether they split it amongst asset classes, industries, sectors, countries or companies.
2. You have Experts Managing your Money 24/7. These professionals everyday job is to make the correct decisions with money and watch the indicators of what will happen next so your money is always one step ahead.
3. Re-investing is easy. You can re-invest your earnings through compounding. This can add up over many years!
4. You can easily Setup a Regular Investment Plan. I personally allocate 20% of each pay cheque to buy more units in my managed fund each month. This strategy can be put into place on a regular monthly, weekly or fortnightly plan, its called ‘Paying yourself first’.
5. Your investment can be used to generate income or growth - and in some cases, both! The returns you get from a managed fund usually come in two forms. Income (paid to you as a ‘distribution’) and capital growth (achieved only when the unit price increases in value).
6. You can invest smaller sums of money then that of the share market. Eg; you can purchase batches of units from as little as $1000 in some funds. Managed funds allow you to access certain investments at a fraction of the usual cost. This is because you share these costs with other members of the fund rather than having to pay the minimum investment fee on your own.

Positive and Negative attributes of Managed Funds

Benefits of Managed Funds

• Diversification
• Low start-up costs
• Expert management
• Regular investment options
• Potential to earn income or to reinvest
• Potential for high returns
• Choice of Strategies at different levels of risk

Downsides of Managed Funds

• Set-up fees around 4% on joining
• Ongoing costs around 2% per annum
• Possible exit fees
• May not be liquid

Positive and Negative attributes of DIY Shares

Benefits of DIY Shares

• Low start-up costs
• Potential for high returns
• High degree of control over investment
• Generally stays ahead of inflation over the long term
• Dividend reinvestment

Downsides of DIY Shares

• Limited ability to diversify
• Subject to market forces
• Subject to high risk
• Brokerage fees on share trades

Suggested Managed Fund Providers

• Colonial First State Managed Funds.
• Investsmart Managed Fund Comparisons
  

Do I invest in Shares myself or Managed Funds?

Personally I have investments in both my own personal share portfolio + Managed funds. The reason for this is that I put away around $1000 to $1500 a month into a managed fund for growth purposes over the next 20 years, much like a Super contribution Version 2.

I also save up money and buy large batches of shares for investment growth purposes aswell, this allows me to buy substantial holding amounts every 3-4 months. This allows me to Invest in Shares regularly.