Diversified long term returns
Whether you save on a regular basis or occasionally have a lump sum to invest, there is an investment fund for you.
You could be looking to save for your retirement, to pay off your mortgage or to help your children through school and university. People save for a variety of reasons – but increasingly, more people are recognising that if they want greater freedom in the future, they are going to have to start planning their personal finances now!
Investment funds come in many different guises. Mutual Funds, Unit Trusts, Investment Trusts, SICAV’s, PEP’s, OEIC’s and to a limited extent ISA’s are all different names for essentially the same kind of investment vehicle known generically as a “collective investment”. In Switzerland you might have heard them called Anlagefonds or Investment Fonds.
They all have one thing in common though: when you invest into an investment fund you are not participating in the haphazard growth of just one investment, but in the smoothed out returns of possibly hundreds. This diversification makes share based investing much less volatile, and therefore safer and lower risk than buying the shares of an individual company.
By investing your money along with the money of thousands of other investors the professional fund managers create a large pot of money owned by a collection of people – hence “collective investment” – and each person is allocated a proportion of the whole pot depending on how much they have invested. This pot can then be used to buy many different shares, securities or bonds which reduces the risk associated with picking a bad performer.
One of the great advantages of Investment Funds is that they are very often used to invest in a particular area of the world, sector of the world economy, or a certain asset class, and this means you can build up a nicely balanced portfolio targeted at solving your own individual needs.
The name of the investment fund usually tells you what it invests in. A European Equity fund will only invest in the shares of European companies; a Global Bond fund will only invest in Fixed Interest securities and gilts, but from anywhere in the world. A Telecoms fund will only invest in the shares of companies classified as Telecommunication companies. And so the list goes on. You can even get cash funds which can be useful for short-term deposits.
Usually an experienced independent financial adviser will be able to help you to create a portfolio of good investment funds that meet your needs in a way that is tax efficient, profitable, and that does not create more risk for you than you can bear.
With charges well below those of Life Insurance Investments you also receive excellent value for your money with reasonable charges and usually no withdrawal costs. Beware of some companies though – they charge you what you think are lower fees to buy them, but then charge more fees when you sell them.
Funds can be very flexible: good funds have no lock in periods or withdrawal penalties, and you can add or take out money anytime. If you are saving in funds on a regular monthly basis you can usually stop and start whenever you like. You can draw an income from them, or roll it up within the fund.
If you are a busy person who doesn’t have the time, inclination or interest to watch stock prices all day long, week in, week out, then investment funds will probably offer you the best way to make good sums of money over the medium to long term.
Life Insurance Funds
Of course, life assurance investments do have their place as well, but only in certain circumstances do they work in your favour. They can be very useful for providing you with an annual income where you set the percentage rate taken yourself.
For lower risk investors who are unhappy about stockmarket volatility the With Profit Funds of British International Life Insurance companies can make interesting investment vehicles, with returns ahead of inflation and in some cases into double digit average returns.
Beware of the ubiquitous “suitcase salesman” who flies in, meets you in a hotel, and who has no local work permit, financial services authorisation or local reputation to lose by selling you something unsuitable. You won’t be protected by any regulatory authority that exists in their home country either since that jurisdiction ends the moment the plane leaves the tarmac on its way to see you.
Always ask to see the salesperson’s work permit or Swiss passport, and look for their proof of authorisation with the relevant authorities. If they do not have these, then they are not working legally in Switzerland and you should be very cautious. We have met many people who have had bad experiences with these people, or later found out the investments they were sold were designed for high commission payouts ahead of good returns.
Also beware of Swiss based insurance salesmen who may try to encourage you to borrow money to invest. You may lose more than you invested.