There are four factors investors
should keep in mind when discussing investments One would be wise to consider risk factors,
performance, longevity of portfolio manager and the asset class.
In future posts we will be
discussing the three factors of risk but for now it’s easy to see on the funds
website what level of risk the fund maintains.
A good example would be Aggressive Growth. But be careful. I’ve seen many funds that offer aggressive
growth and yet lag behind funds that are LESS risky.
Obviously the fund’s
performance is an important criteria. I
caution clients to look for a long time period.
In my career I’ve seen many one hit wonders. They rise very rapidly only to languish for
long periods of time. My first
preference is what has the average rate of return over TEN YEARS.
The portfolio manager’s
tenure is a critical factor. Be careful
to look for a high turnover and/or a manager who has managed a fund for under a
year. The ideal situation is a manager
who has been an understudy, assistant and has been groomed to take over the
fund over and has been with the fund over a long period of time.
Lastly, consider the funds’
asset class. Large cap growth is very
popular but if you’re looking for dividend income it might not be the best
asset class. Small cap funds usually
offer greater growth with additional risk.
So if you’re looking for some steady growth, small cap funds might not
be appropriate for you.
As always remember to read
the funds’ prospectus for a detailed explanation of risks, objectives, taxes
and fees.