The wide range of available funds can be overwhelming. Around 1,900 investment funds are offered by local asset management companies in Austria alone (source: OeKB, as of December 2021). There are many different investment focuses, and the themes also vary widely. So which investment fund is most suitable for you? To put it simply: Your individual needs and personal preferences are what counts here. They form the basis for your investment strategy. A structured process can help you find the right investment fund. To bring clarity to the seeming jungle of funds, you should ask yourself the following basic questions.
How well do I know investment funds?
Experience and knowledge are two important factors when investing. How well do you know financial instruments and financial services? Do you already have some experience with investment funds? Over what period did you gather this experience, and what amounts did you invest? Questions of this nature also form a central component of an advisory meeting so as to determine a suitable type of investment for you.
What are my goals for investing in a fund?
People who think about investing in a fund should be clear about their personal investment goals. Do you only want to “park” your money for two or three years because you’re dreaming of a new car or because you want to renovate your home then? Are you just starting your career and thinking about setting aside for retirement? Or would you like to build up your capital in the medium term to help your children find their feet at a later stage by first supporting them financially? The purpose of the investment determines the duration of the investment.
How much money do I want to invest in funds?
Get a better overview of the means that are readily at your disposal: What portion of your money do you need over the next years and what amount can you invest in funds over the long term? When investing a larger one-off sum, think about how long you will be able to do without that money. For smaller amounts and regular investments, fund-based savings plans are one way to invest in investment funds (How does fund-based saving work?). Here, you should decide on an amount that you can afford over the long term despite the costs of living. However, if you go through a patch of unexpected financial difficulties, you can change the chosen amount at any time.
What risks do I want to take?
No investments only provide opportunities for profits. Investing in funds always entails a certain degree of risk; however, the risks are very different depending on the asset class and fund type. One can generally say that prices fluctuate more strongly for equities than bonds, for instance. But please note that capital losses are possible for every asset class and for every investment fund.
Are you mainly seeking capital preservation and security, or are you prepared to take greater risks in order to get better earnings opportunities? Have you considered how you would handle losing money if that should happen? This also serves to determine your appetite for risk. The selected fund should definitely be in line with your own risk tolerance. A synthetic risk and reward indicator (SRRI) is calculated in a standardised manner for each fund. These system is intended to give you, as an investor, an indication of the risk characteristics of a fund. Please note that the risk and reward indicator is based on data from the past and cannot be used as a reliable indicator for the future risk-return profile.
What does volatility mean?
Volatility is a further means to measure the risk incurred when investing in a fund. The volatility of a fund tells us how strongly the fund has fluctuated around its average value over a specific period in the past. In general, the greater the fluctuation range (volatility), the greater the risks involved for the investment – because a high volatility means that the price fluctuates a lot. Maximum losses from the past can be a further yardstick to determine whether a fund suits your own risk profile.
Other criteria when selecting a suitable fund
The answers to these questions form the basis for your investment mentality, which will dictate the composition of your individual portfolio. However, there are of course other criteria that have a bearing on the selection of funds. In this regard, it’s a good idea to rely on the expertise and experience of your Raiffeisen bank advisor. •
In which asset class should the fund invest? Equities, bonds, or mixed funds: Every asset class offers different opportunities and involves different risks (What kinds of funds are there?).
Do you wish to invest in specific sectors such as health care or technology?
Would you like to invest in a specific country or region (e.g. Austria or Europe), or should the fund have a global orientation? Here, please note that if a fund also invests in equities from countries with a different currency, then the exchange rate will have an impact on the total returns.
Is your focus oriented towards sustainability (What does sustainable investment mean)?