Essential tips to increase returns on your investments
PUBLISHED: 13:49 23 May 2017 | UPDATED: 16:24 23 May 2017
Don't fall into the trap of paying huge charges on your investments - use these tips to help you save money and increase your returns to maximise your pension and savings
Most people fall into the trap of unknowingly paying huge charges on their investments. This is easily avoidable. Investing your money in a passively managed mutual fund can save you money and therefore increase your returns, so it is important to understand the difference between active and passive investing, and how to proceed from here to maximise your pension and savings.
Save on investment costs
Actively managed funds are run by fund managers who buy and sell investments, based on analysis and research, with a view to outperforming the market and getting a higher return for investors. For this service, you pay high ongoing management charges (as much as 4% per annum) because companies must pay their fund managers, research teams, and analysts.
In contrast, passively managed funds mirror different indices, for example the FTSE 100 or the S&P 500, and perform in line with the index. As you are not paying for a fund manager and teams of researchers and analysts, the costs of a passively managed fund are considerably lower – up to 2-3% less per annum – which translates into better performance.
Achieve a good return
You might expect an actively managed fund to achieve a better return for you. After all, you are paying for an expert team to pick and choose the best investments according to research. However, overall, actively managed funds tend to perform in line with the market – some quarters will see high returns while others will see low returns and this will eventually average out.
Passively managed funds are designed to perform in line with the market and so you can achieve the same return for considerably less cost. A recent study found that passive investing outperformed 97.6% of all mutual funds and since the launch of Forth Capital’s exclusive passive investment strategies in February 2016 they have achieved from between 10% growth (with their cautious strategy) to 30% growth (with their adventurous strategy).
Reduce your risk
Warren Buffet had something to say about this. “The active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group – the ‘know-nothings’ – must win!”
With actively managed funds, the fund manager is trying to achieve a higher return and beat the market. Only a very small number of fund managers will be able to do this, and they certainly won’t be able to do it on a consistent basis. They are more likely to invest in niche sectors or smaller companies which are inherently riskier, and their bias may also come into play when deciding where to invest.
On the other hand, a passively managed fund invests in a wide range of companies within an index, removing this bias. This geographical and industry sector diversification considerably lowers your risk and you can rest easy knowing your money is safe.
With Forth Capital’s low-cost investment strategies, a risk questionnaire will determine your risk profile which ranges from cautious to adventurous. For example, as you get older you tend to take less risk and capital preservation is more important than growth. Forth Capital’s strategies allow you to switch strategy free of charge to ensure your investment always matches your risk profile.
It’s vital to make your pension and savings work in the best conceivable way for you. Find out more about Forth Capital’s passively-managed mutual funds here