Invest in Portland

I read with amusement an article I found on the website of a Self Managed Super Fund (SMSF) services company that compared the fees they charged for doing SMSF administration with the management fees charged by large Superannuation Funds and of course concluded that it was cheaper to have an SMSF. The writer of the article is assuming the only costs for running a fund is simply administration fees. In 2008, I did some research for a friend who was planning to start fund management company, and what I found was that the administration fees are only a small part of the costs of a fund management company. The biggest costs are for research and investment management expertise.

The writer of the article must assume investing requires no skills and choosing the right stocks to invest in is as simple putting the stocks page of the newspaper on the wall and throwing a dart to choose a stock to buy, or taking tips from your neighbour or taxi driver. He assumes there is no need to pay for financial education, research or advice to properly manage an investment portfolio. I wonder how well his clients’ portfolios are doing this year – not too well I suspect if they believe no skills are needed for investing.

For anyone who is considering starting an SMSF, you must factor in a cost for investing. Some of the costs would include

1) Education – if you plan to invest in stocks, you must know some basic techniques for analysing stocks such as fundamental analysis and technical analysis so you have a basis for what stocks to buy, and when to buy or sell a stock. If you wish to invest using other more complex instruments such as options, futures, warrants or CFDs, there is more education that you will need to invest in. There are many education companies out there and most courses I have seen costs a few thousand dollars each. I have spent quite a lot of money on books, courses and seminars but I see it as an investment in myself to develop the skills I need to help me manage my investments, no different from paying for a University degree to get the skills I need to help me find a job.

2) Research -

We can define the term portfolio simply to be the combination of assets. A dedicated investor can honestly reach the optimal portfolio position following the theory that defines the theories of the same. According to this theory; variance (that can be in its standard deviation or in square root) of return and mean return are the two fundamental factors that can automatically determine the functionality of the shareholder, investor or even depositor. Based on this concept, an individual can depict it as a portfolio theory based on two parameters or even mean-variance portfolio theory. It is always preferable option for an investor to return in lower variance in support of a higher one and mean return to be higher in support of a lower one. Hence in investment portfolio management, balanced investment strategy is considered to be the most successful approach that is followed by almost all investors. Portfolio management services in India includes this strategy in their fundamental theories and supports it quite comprehensibly.

The continuation of investment portfolio management is indispensable for an individual who is concerned to different facets of investment both personal and official. But there are certain factors that an individual should observe before going for any investments. He is be updated with the allocation of asset reviews at least on a fortnight or weekly basis as the fluctuation level of these markets are quite high and rapid. Moreover to slice off the risk and diminish the impact of losses, an individual should maintain a healthy ratio that balances both his financial securities and stocks. So there should always be a margin of risk taking factor before investing in shares and stocks. Moreover in investment portfolio management, stability is found to be provided to your commodities and stocks in your personal investment which directly yields an open option to buttress a stock concentrated portfolio. Besides in the long run, the value of such portfolios does not loose nor fluctuates with the rapid change of market conditions. Keeping a close view on the taxes and procuring benefits as and when offered can directly put a positive impact on your investment policy of the assets. Such a observatory approach will help an individual worry less about paying hefty amounts in the form of taxes after gaining some worth countable profits over the shares and other financial securities.

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Without question, there are some disadvantages with mutual funds. They charge management fees that ultimately cut into annual return figures, they invest the way they feel most appropriate without any consideration given to the investor who pays the manager’s fees, they can be narrowly focussed, and a few others that are well publicized in the investment industry.

However, mutual funds offer tremendous advantages for the majority of the population. Three of the most overlooked benefits are discussed here and they point to the very fact that mutual funds are, for the most part, an investor’s best option.

1. Mutual funds offer tactical investment management. Although many funds will take a buy and hold approach, the securities they own are part of the overall portfolio for a very specific reason. It is rare that a fund manager will purchase a security that he or she feels is a losing proposition. Instead, securities are purchase for their specific appeal, whether it is short-, mid-, or long-term capital growth, income, or a combination of both.

2. Mutual funds provide expertise in niche areas where the investor lacks sufficient knowledge and skill to take positions in individual securities. With asset mix being such an important, vital part of any investor’s long-term success with their investment portfolio, it becomes increasingly important to incorporate niche sectors, whether short-term bonds, high yield investments, small-cap equity, foreign equity, and so on. Almost no investor will have professional-level investment knowledge in every asset class and sub-class, requiring them to seek assistance from other professionals. Rather than relying on a rogue neighbor who dabbles in a specific asset for “fun,” enlisting the expertise of a highly (often overly) qualified investment manager makes a great deal of sense for the price they cost (often, minimum investment levels are under $2,500) and you usually pay less than 1.5% in expenses.

3. Mutual funds can have specific or general functions depending on an investor’s needs. Whether an investor needs a complete investment solution (such as with a target date balanced fund or portfolio) or something on a more specific level (such as filling a gap in their overall asset mix), a mutual fund exists on the market to fill those gaps, and everything in between.

As shown with these three simple examples, there is a mutual fund available to everyone, regardless of his or her immediate and long-term needs. Of course, other options exist but the closest one will find to a mutual fund alternative is an exchange traded fund, which often will not satisfy the investor’s long-term and/or specific need.

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