Take me for instance, I invested a fairly hefty sum of money (for me anyway!) in the share market in 2008. Not long after, we had the big down turn – leaving my shares at nearly 50% of their previous value. I was utterly gutted, I felt so terrible.

It turned out however that the shares I bought would come back up, close enough if not exactly to the cost at which I bought them after 18 months. The problem however is that my money didn’t earn me anything and the worry that I may have just lost all my money was over powering for me. I am obviously risk adverse and not someone who is interested in taking those leaps of faith in my own, internet reading only, understanding of the share market.

This is where managed funds can come into play. Though they can be just as risky as shares, they are typically pooled together with other peoples money and invested in diversified assets by a fund manager.

Someone who actually works the share market and other investment angles for a living. Phew! Doesn’t that sound much better than my leap of faith?

So what are the advantages of managed funds?

1. You don’t need a lot of money to get started. You can often begin with as little as $1K + a regular investment plan.
2. Fund managers tend to have access to international shares, mortgages and other angles of investment that would otherwise be unaccessible to you.
3. Leave it to the pro’s. They do the heavy lifting for you.
4. Depending on your fund, they will diversify your money to ensure you don’t get hit 100% by the share market drops – this really depends on your fund however so best to ask them directly.
5. They help you organise a regular savings plan by which you will invest your money in fortnightly or monthly intervals. This gives you greater investment sums of the long run and helps you by dollar cost averaging. Meaning you are buying into the funds at different rates, sometimes higher sometimes lower, but at the end you will have an average buy in cost that is reduced.

We are interested to know if you have a managed fund?

Tell us which fund you have and how it is going for you by dropping a comment below.

Relying on expert and professional investment advice can sometimes turn a case of the blind leading the blind and you still ultimately decide where to put your money and carry all the risk — the risk part is probably what puts many of us off.

How do you invest your cash?

People who do successfully grow their wealth by investing swear by it and encourage people who don’t currently invest to do the same. “It would be silly not to”, although after the crash of the stock market, they’re probably signing a different tune.

The good news is, many stocks and bonds, especially in the US market are now cheap and it’s a good time to buy — but if you want to be able to walk before you run when it comes to investing your hard earned cash, here are three low risk investments you can try:

Fixed term deposits

If you like certainty and knowing exactly how much interest you’re going to earn in a fixed amount of time, fixed term deposits are for you. You’ll be making slightly more than if your money sat in a regular savings account but it’s a good start. Find, compare and apply for fixed term deposits at http://www.ratecity.com.au/term-deposits/

Gold

Drag your husband to the jewellers and pick out a gold necklace and ring to match. More and more people are turning to gold as their investment of choice in the current economic climate. Gold has a history of being stable and its value hasn’t gone down with economic crisis.

Apart from buying gold from the jewellers, you can invest in gold by buying into companies that produce gold or gold coins and bullions. Find out more about investing in gold at the Australian stock market blog

and the Perth Mint website.

Capital guaranteed funds

Essentially fixed term deposits by a different name, capitol guaranteed funds are available through your superannuation or insurance fund. It promises to provide full security of your capitol and modest returns over a set period of time. Check out the Australian Super website for information about their capitol guaranteed funds or get in touch with your superannuation broker.

The downside to low risk investments: low risk means low return. To find out more about investing, visit the education and resources section of the Australian stock exchange website.

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.

Pro’s and Con’s 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

Pro’s and Con’s 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
  

I use shares and 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.