Picking the right funds
Once he has decided which areas to invest in, your client needs to think about what types of investments he wishes to buy. Individual shares and bonds offer significant potential but the knowledge required to make a well-informed decision is beyond a novice investor. Unit trusts and Oeics offer a broader investment with the added advantage that a premium is not payable on buying the fund (unlike investment trusts, which you could pay a premium on or buy at a discount – one for more experienced investors).
There are thousands of funds out there for investors – far too many to make a comprehensive choice. Fortunately there are investment providers that have helped cut this down to a manageable number – a list of their favourite funds. This is a good place for a novice investor to start.
There are several questions to consider when picking a fund, such as: How long has the fund manager has been managing money in that sector? If the fund has a new manager, what is his track record like (as opposed to the fund’s track record)? What is the manager’s investment style – is it growth or income? When should the manager perform, and when is he likely to underperform? If he has underperformed recently, what did he do to address this? Sometimes nothing might be the right approach, but it is important he recognises the underperformance.
Find the right investment service
Of the several important factors to consider, costs, service and jargon are among the most important. Costs have a direct impact on the performance of your client’s investment, so it is critical to keep these low. Your client should make sure the platform is transparent, with a Crystal Clear pricing. He should watch out for exit fees – these are not important at the beginning but could soon trap him in the wrong service. Good customer service will also help him learn how to invest. Having the right support will be very helpful. Jargon, commonplace in the financial services industry, prevents many people from investing. Most platforms offer online services, and visiting their websites would be a good way to identify one that suits your client. Those that have clean and uncluttered websites are probably better placed to service newer investors, but the prospective investor should browse as many as he can.
