There is no doubt that one of the most important decisions of our finances is to decide how we manage savings for retirement. Investment funds represent one of the many financial products that help those building their retirement savings account.
There are as many types of investment funds as there are investment strategies. When considering savings for your retirement, you risk your retirement fund when you choose to invest as a savings strategy. Here is how to choose an investment fund that is right for you.
Determine Retirement Savings Goals
The purpose of all investments is to increase wealth. We must keep in mind what sense is given to both saving and investment. Associating these concepts with your retirement goals will help motivate you to choose the best investment fund.
Your retirement savings objectives need to be concrete and obtainable. You will have to decide what you want to do in your retirement years when setting goals and making them happen. The investment term is an essential factor in selecting the type of investment fund most adapted to our financial needs. Both the objective and the deadline are two critical aspects of any investment.
Set the maximum risk to assume
Establishing the risk profile involves introspective work since it depends mainly on a psychological factor inherent to each saver.
Concepts such as age, income, family situation, and other personal issues influence when defining our profile as an investor. But in short, every saver knows where he has their psychological cap. If not, there is a trick that works very well:
Profitability and risk are two concepts that are intimately and related. The higher the return, the greater the risk. There will always be the case in the investment world. Beware of those who promise high profitability with little risk.
Therefore, the level of risk is established first, and then the best return adapted to that level will be sought. Doing it in reverse is a severe mistake.
Pre-select investment funds related to you
After the introspection work, we will have to carry out the research work. Luckily, some fundraisers make their tasks much more accessible. In addition, as soon as the saver is clear about the objective, the time horizon, and the risk, it will be much easier to find the ideal savings product.
Now is when the star question comes, fixed income, equities, or a mixed fund?
Neither fixed income, nor variable income, nor the combination of both types is good or bad by themselves; everything depends on the economic situation and our profitability and risk objectives.
We must inform ourselves how much the fixed income performs in general terms and if their profitability is consistent with our objective. That being the case, we would not have to assume a more significant risk unnecessarily.
Unfortunately, the fixed income in recent times is not giving a good return, thus being necessary to include a percentage of variable income to the portfolio to achieve the monetary objectives in the marked horizon.
One thing that should be clear, the variable income is not suitable for short-term objectives. Due to the volatility it presents, it can ruin our investment strategy. As we get closer to the end of the savings period, we must choose a more conservative investment philosophy.
If the variable income can lose 10% in a year and our time horizon is two years, will there be material time for the investment to recover? It is unlikely. Their type of asset works very well for longer horizons; however, you can incorporate a percentage into any portfolio to give it an extra return without losing sight of the risk profile.
In short, we must inform ourselves of the risk and profitability of each category of investment funds. In their way, we can limit the universe of these products to the preselection of funds related to our strategy.
Read the DFI of the pre-selected fund carefully
The Document of Fundamental Data for the Investor (DFI), formerly called a simplified informative brochure of the fund, is mandatory delivery to the investor before subscribing to the investment fund’s participation.
Their document summarizes all the relevant background information, which the saver must know to make an informed investment decision. Once an investment fund has been pre-selected, it is necessary to make sure that it fits our needs through their document.
When the saver has their information in their knowledge, they can decide to manage their savings and choose the right investment fund. The next step is to execute the subscription of shares in the selected investment fund.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.