Mutual Fund Diversification

Simply put, diversification means not putting all your eggs in one basket. This is especially important in investing. Through porper diversification, losses in one investment can be off-set by gains in another. In the process, overall risk is minimized. Investing in a mutual fund provides you with immediate access to a diversified portfolio of funds. By virtue of the size of the pool of funds, the mutual fund is able to purchase many different investment securities and diversify.

Mutual Fund Potential Higher Returns

By Pooling together the funds of thousands of investors, a mutual fund is able to access potentially higher yielding investments that required large minimum investment amounts. This, investors are able to access potentially higher yields that may not normally be available to them due to the size of their individual funds. Moreover, the fund manager ensures that the mutual fund generates the best possible returns for the given level of risk of the mutual fund.

Mutual Fund Professional Management

A mutual fund is managed by an experienced, full-time fund manager whi is focused solely on analyzing the financial markets and seizing market opportunities as they present themselves. By investing in a mutual fund, you benefit from the fund manager's experience and market insight.

Source: Philequity

Strength in Numbers, Mutual Fund Investing Benefits

The power of a mutual fund lies in its ability to pool together funds from so many different investros. Imagine a thousand investors each with P5,000 to invest who decide to pool their funds together. That is already a pool of P5 million! Now imagin that instead of just investing P5,000 each, someinvestors put in P10,000, P1 Hundred Thousand or even 1 Million Pesos. The size of the collective pool would even be bigger. And when it comes to investing, there is strength in numbers. 5 Million Pesos can gain better access to more diversified investment instruments than P5,000.

A mutual fund is a vehicle that allows investors to combine their resources. Because of this, you do not need a large amount of money to gain access to a well-diversified portfolio of top-performing investments. A mutual fund makes this possible. Here are some of the key benefits of investing mutual funds.

1. Professional Management
2. Potential Higher Returns
3. Diversification
4. Liquidity
5. Safety

Details will be on the next coming articles...
Our Source: Philequity

Determine Your Risk Tolerance

Your Return Objectives. The higher the return you require in order to achieve your financial goals, the greater the amount of risk you will need to take.

Your Age. The younger you are, the greater the amount of risk you can take. Why? Simply because you have more time to recover from any losses that you incur and because you have more income-earning years ahead of you.

Your Total Assets. The larger your total assets, the greater the amount of risk you can take. This is because you have more to draw from for your regular expenses should you  incur losses in some of your other investments.

Your Investment Time Horizon or the Length of Time you are Willing to keep your Money Invested. The longer your time horizon, the greater the risk you can take. The reasoning behind this is similar to the reason behind age: the longer the time horizon, the more time to recover from any losses.

Your Past Investment Experience. the partly determines your attitude to risk. A bad experience from a past investment may make you more gun-shy and risk averse. Or, investment carries and could have made you more willing to take on risk.

Your General attitude to risk. Other factors such as your presonality or the people around you may influence your appetite for risk.

The first five factors determine your ability to take on investment risk. These are the more objective determinants of risk tolerance. The last two determine your attitude towards risk and are obviously a bit more subjective. It's more important to understand the distinction between a person's ability to take on risk andhis attitude towards it. Sometimes, there are people who objectively can take on much more investment risk than they are currently taking but simply refuse to do so because they are jsut not comfortable with the idea of losing money. On the other hande, there are people who are willing to take on more risk even if they literally cannot afford to do so. Neigher is ideal investor behavior. It's always good to achieve a balance.

Understanding your risk tolerance then helps you determine which investments are suitable for you.

Understanding Investment Risk

There is no such thing as free lunch. Nowhere is this truer than in the world of investments. When it comes to investing, gaining access to higher returns comes at a price. And that price is called risk. In investments, risk is commonly defined as the possibility and magnitude of incurring a loss. But actually, risk can be more broadly defined as the possibility of obtaining something other than what you expected. So, risk can actually work in your favor. In terms of investments, you could end up with a return that is higher than what you initially expected because of the riskiness of investment. In fact, in investments, the following relationship holds true: the higher the return, the higher the risk.

All this talk of risk may sound frieghtening. Does it mean that you should avoid risk? Especially when it comes to your hard-earned savings? The answer to that question is resounding..."it depends". The amount of risk that you are willing to take and are capable of taing is called your risk tolerance. Your risk tolerance is a function of several factors that are unique to you and is thus different from the risk tolerance of another person.

Source Philequity Management

Monitor the Performance of Your Investments

Finally, it is important to regularly monitor how your chosen investments are performing. Are they making money? Are they bringing your closer to your investment goals? Are your still comfortable with the risk you are taking? Has your financial situation changed significantly enough to warrant a change in strategy? There are some of the important questions you will need to answer to evaluate your investment strategy.

Benchmark. The final checkpoint for evaluating your mutual fund is to compare it to other similar entities. Every single asset class  has its corresponding index, which you can use to see how the overall asset class is performing, and then see how your individual mutual fund is holding up against that benchmark. Ofthen when you pull up your mutual funds infoation, a benchmark is already provided for comparison. The question they are answering with the below chart is, if you invested 10,000, how has the benchmark and your mutual fund performed over th same timeframe?