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5 Important Factors for Investments

5 Important Factors for Investments

When you’re picking investments, it’s easy to learn towards the ones with low investment fees. But low investment fees combined with low returns don’t help your retirement.

 Make sure your financial planner takes into account these other factors:

The ten year cycle of mutual funds

If an investment has a good year, it doesn’t mean it’s a good long term investment. I want to see how the fund performs throughout both up and down markets. Over the course of ten years, there is enough of a track record to show long-term profitability. But I don’t just look at increase in value, I look at how the fund performed versus other similar funds. For instance, did it do better or worse than market averages. I also check performance in shorter time periods such as one year, three years, and five years. The reason I do this is a fund could have one great year that increases it’s value, but it’s not indication of long term performance.

The mutual fund is accurately described

It’s not uncommon for a fund to say it’s comprised of large companies, yet it contains a few that aren’t. For funds I recommend regularly, I always check that the mutual fund is at least mostly what it claims. Since any long term portfolio should have a diversity of investments, having an investment that isn’t what it claims to be can throw off long term planning. 

Risk-adjusted performance

If you are taking on more risk, you should be doing it for more reward. A mutual fund with double the risk should offer double the potential gain. 

Track record of fund manager

Fund managers pick the investment within a fund from stocks and bonds to cash. Thus, the track record of the person running your fund is very important. A good financial planner will look at their fund managers track record over three years. This may include past funds they’ve managed. The mistakes by fund managers could be in the direction of not taking on enough or taking on little risk. For example, it’s just as dangerous for your retirement if the fund manager choosing to leave too much cash in the fund as it is to invest in riskier companies. The reason why is cash doesn’t have the same growth potential as stock-market based investments.

Social Impact

Your values are important in everything you do, especially where you put your money. While Social Impact shouldn’t be your only factor, you do want to make sure a majority of investments adhere to your over all belief system. You can choose investments boasting sustainable practices, fair wages, etc. you can design your future while helping the future overall.

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