Not all managed funds make money for their investors and one point that is constantly hammered home is that past performance is no indication of future performance. The top performer from last year is rarely the top performer two years in a row.
You also have to be aware that you do not dictate where your money is invested so it is essential you choose a fund that closely matches the companies or industries you are keen to invest in.
Don't forget that managed funds attract fees and charges and these vary from fund to fund. Some charge an entry fee and no exit fee, some charge the reverse while others don't charge any fees. You need to familiarise yourself with all fees so you don't get a shock when your statement comes. The time to ask questions is before you invest.
When you get a statement from your managed fund, it will itemise your tax liabilities on the distributions you have received. Distributions comprise both income from dividends and interest and income from the sale of assets (capital gain). Dividend income is taxed at your marginal tax rate. If the dividends have been franked, you will receive franking credits. Don't forget to include the distributions you receive in your annual tax return.
You will be taxed on just 50 per cent of the capital gain component of your distribution if the fund owned the asset for more than a year. The statement does not include any capital gains you may have made if you disposed of any of your investment.
Costs of investing in managed funds vary but usually involve entry and exit fees and an annual management charge.
Entry and exit fees can range from nil up to 5 per cent depending on the type of fund you select. Cash management trusts and mortgage trusts typically have no fees. However, international shares tend to attract a higher fee. The situation of charging entry and exit fees is changing with the introduction of discount brokers (such as InvestSMART, a subsidiary of Fairfax Digital Limited) who generally rebate the fee. Advisers also tend to rebate the fee if you buy units through them.
Not all managed funds charge exit fees. Some reduce exit fees depending on the length of time you keep your money in the fund, usually eliminating the fee entirely if it is more than five years but charging around 5 per cent if it is less than a year.
Some managed funds offer lower entry fees but higher ongoing fees. If you are planning on investing for the long-term, it can be better to pay a higher entry fee upfront.
Ongoing fees
This fee is an annual charge that covers the cost of the fund manager's services, administration fees and the commission paid by the managed fund to the third party with whom you dealt with to buy into your managed fund. The Investment and Financial Services Association requires fund managers to publish a fee that encompasses all costs, so investors can more readily compare apples with apples. This figure is called the Management Expense Ratio (MER). Ongoing fees vary depending on your choice of investment. The MER on cash funds is usually much lower than the MER on international share funds. This is because monitoring international share investments involves greater input from the fund manager. The range is approximately 0.5 up to 3 per cent
Sunday, February 7, 2010
Managed funds
There are several ways to invest. From 0ur studies, I realise the most viable option for me to start creating my wealth is via managed funds. I would like to start investing in property as well, but that I feel will have to be further down the track.
An interesting website to learn more is: http://www.moneymanager.com.au/investing/guides/managed_funds_guide.html.
From here, I will reproduce the following information:
Managed funds - also known as unit trusts - are vehicles that allow you to pool your money with a number of other investors into a single fund that then is able to invest in assets that might otherwise be out of your reach. Managed funds are what they say - funds managed for you by others - namely, investment professionals such as fund managers. Managed funds can invest in a variety of assets including shares, property and fixed interest or a combination of these. All managed funds have a prospectus which allows you to see where it is investing.
The attraction of managed funds is the diversification they offer. If you wanted to invest in shares but only had $1,000, realistically you could only invest in one company. If the company performs badly, you could lose your money. But if you invest that money in a managed fund, depending on the fund's profile, you may have an interest in 10, 20 or even 50 Australian or international companies. The same applies to property trusts. You may want an exposure to property in your portfolio but cannot afford to buy a house. If you invest in a property trust, then depending on the sector it invests in, you can have exposure to major shopping centres, CBD office blocks, or a leisure resort.
Investing in a managed fund also gives you the benefit of a professional fund manager. Fund managers have access to much more research than the average investor and presumably a better knowledge of investment markets. Of course, you won't necessarily have the control to choose the individual investments made by the fund manager, but with thousands of managed funds now on the market, you'll certainly be able to choose a fund that reflects your risk profile and closely mirrors the choices you might yourself have made. However, be aware that not all fund managers make money for their investors. You need to do your own research to ascertain how comfortable you are with a fund manager's approach to investing.
If you decide to invest in managed funds using a regular savings plan, because you are contributing a set amount each month, managed funds are also a simple and convenient savings vehicle.
How much do I need to invest in a managed fund?
Usually you need to invest a minimum amount of $1000 to buy into a managed fund although some let you start your investment with as little as $500, especially if you also commit to a regular savings plan where you add to your investment on a monthly basis from as little as $100.
When you invest in a managed fund, you are buying units of equal value in the fund. If the value of the investments owned by the fund rises, then so too does the value of your units. If the value of the investments fall, then so too does the value of your units. The value of the units that you have invested in at any time is the market value of the fund's investments divided by the number of units issued, less any debt. This is known as the net asset value.
Types of managed funds
Managed funds can be both listed and unlisted. Those that are listed can be traded on the stockmarket and have a market value that is determined by supply and demand. These funds tend to be closed - that is, there is a finite number of units on issue.
Non-listed funds can be either open or closed. If they are open, new units are issued to meet demand with a new prospectus released every six months or so. Unlisted funds are valued at least weekly, if not daily, by the fund manager. The value is calculated by dividing the current value of the total assets plus either the buying or selling costs by the number of issued units. If you want to sell your units in an unlisted fund, you need to contact the fund manager who will have set out in the prospectus how quickly you can access your money. It is usually no more than two weeks and often within day
An interesting website to learn more is: http://www.moneymanager.com.au/investing/guides/managed_funds_guide.html.
From here, I will reproduce the following information:
Managed funds - also known as unit trusts - are vehicles that allow you to pool your money with a number of other investors into a single fund that then is able to invest in assets that might otherwise be out of your reach. Managed funds are what they say - funds managed for you by others - namely, investment professionals such as fund managers. Managed funds can invest in a variety of assets including shares, property and fixed interest or a combination of these. All managed funds have a prospectus which allows you to see where it is investing.
The attraction of managed funds is the diversification they offer. If you wanted to invest in shares but only had $1,000, realistically you could only invest in one company. If the company performs badly, you could lose your money. But if you invest that money in a managed fund, depending on the fund's profile, you may have an interest in 10, 20 or even 50 Australian or international companies. The same applies to property trusts. You may want an exposure to property in your portfolio but cannot afford to buy a house. If you invest in a property trust, then depending on the sector it invests in, you can have exposure to major shopping centres, CBD office blocks, or a leisure resort.
Investing in a managed fund also gives you the benefit of a professional fund manager. Fund managers have access to much more research than the average investor and presumably a better knowledge of investment markets. Of course, you won't necessarily have the control to choose the individual investments made by the fund manager, but with thousands of managed funds now on the market, you'll certainly be able to choose a fund that reflects your risk profile and closely mirrors the choices you might yourself have made. However, be aware that not all fund managers make money for their investors. You need to do your own research to ascertain how comfortable you are with a fund manager's approach to investing.
If you decide to invest in managed funds using a regular savings plan, because you are contributing a set amount each month, managed funds are also a simple and convenient savings vehicle.
How much do I need to invest in a managed fund?
Usually you need to invest a minimum amount of $1000 to buy into a managed fund although some let you start your investment with as little as $500, especially if you also commit to a regular savings plan where you add to your investment on a monthly basis from as little as $100.
When you invest in a managed fund, you are buying units of equal value in the fund. If the value of the investments owned by the fund rises, then so too does the value of your units. If the value of the investments fall, then so too does the value of your units. The value of the units that you have invested in at any time is the market value of the fund's investments divided by the number of units issued, less any debt. This is known as the net asset value.
Types of managed funds
Managed funds can be both listed and unlisted. Those that are listed can be traded on the stockmarket and have a market value that is determined by supply and demand. These funds tend to be closed - that is, there is a finite number of units on issue.
Non-listed funds can be either open or closed. If they are open, new units are issued to meet demand with a new prospectus released every six months or so. Unlisted funds are valued at least weekly, if not daily, by the fund manager. The value is calculated by dividing the current value of the total assets plus either the buying or selling costs by the number of issued units. If you want to sell your units in an unlisted fund, you need to contact the fund manager who will have set out in the prospectus how quickly you can access your money. It is usually no more than two weeks and often within day
Monday, February 1, 2010
What is an Investment?
Investment is the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value. [1] It is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance no matter for households, firms, or governments. An investment involves the choice by an individual or an organization such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time.[2]
References
1{{cite book investment is the employment of fund on assets with the aim of earning income or capital appreciation. last = Sullivan first = arthur authorlink = Arthur O' Sullivan coauthors = Steven M. Sheffrin title = Economics: Principles in action publisher = Pearson Prentice Hall date = 2003 location = Upper Saddle River, New Jersey 07458 pages = 271 url = http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4 doi = id = isbn = 0-13-063085-3}}
2 Graham, Benjamin, and David Dodd (1951). Security Analysis. McGraw-Hill Book Company. ISBN 0071448209
References
1{{cite book investment is the employment of fund on assets with the aim of earning income or capital appreciation. last = Sullivan first = arthur authorlink = Arthur O' Sullivan coauthors = Steven M. Sheffrin title = Economics: Principles in action publisher = Pearson Prentice Hall date = 2003 location = Upper Saddle River, New Jersey 07458 pages = 271 url = http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4 doi = id = isbn = 0-13-063085-3}}
2 Graham, Benjamin, and David Dodd (1951). Security Analysis. McGraw-Hill Book Company. ISBN 0071448209
Monday, January 25, 2010
DELI's continued
Accepting what life interests you have is hard if it doesn't match up with your chosen profession.
I am studying civil engineering and I have not enjoyed it as much as some of my other friends. I have realised this is because it doesn't match the two life interests I have which are:
- counselling and mentoring
- managing people and relationships.
I have been thinking about doing psychology after finishing my degree and this seems to agree with my DELI's.
This is a hard decision to accept as it means that my civil engineering degree is in some ways a waste of a few years of my life. However, I am going to try to have a positive approach and think that it has opened doors for me that otherwise would not have happened.
I am studying civil engineering and I have not enjoyed it as much as some of my other friends. I have realised this is because it doesn't match the two life interests I have which are:
- counselling and mentoring
- managing people and relationships.
I have been thinking about doing psychology after finishing my degree and this seems to agree with my DELI's.
This is a hard decision to accept as it means that my civil engineering degree is in some ways a waste of a few years of my life. However, I am going to try to have a positive approach and think that it has opened doors for me that otherwise would not have happened.
Thursday, January 14, 2010
DELI's - Deeply Embedded Life Interests
The following information was from the Havard Business Review of 1999 regarding DELI's.
The real keys to job satisfaction are neither skills nor values, but "deeply embedded life interests."But the fact is, strong skills don't always reflect or lead to job satisfaction. Many professionals, are so well educated and achievement oriented that they could succeed in virtually any job. The answer is, only if the job matches their deeply embedded life interests. These interests are not hobbies — opera, skiing, and so forth — nor are they topical enthusiasms, such as Chinese history, the stock market, or oceanography. Instead, deeply embedded life interests are long-held, emotionally driven passions, intricately entwined with personality and thus born of an indeterminate mix of nature and nurture. Deeply embedded life interests do not determine what people are good at — they drive what kinds of activities make them happy. At work, that happiness often translates into commitment. It keeps people engaged, and it keeps them from quitting. Think of a deeply embedded life interest as a geothermal pool of superheated water. It will rise to the surface in one place as a hot spring and in another as a geyser. But beneath the surface — at the core of the individual — the pool is constantly bubbling. Deeply embedded life interests always seem to find expression, even if a person has to change jobs — or careers — for that to happen.
many people have only a dim awareness of their own deeply embedded life interests. They may have spent their lives fulfilling other people's expectations of them, or they may have followed the most common career advice: "Do what you're good at."
The eight life interests identified , as a key tool for managers to retain their best employees can be equally valuable for employees themselves. This model distinguishes itself from other career interest models in that it is activity-based, rather than based on general interest patterns. It's founded on the notion that interests, not skills, should be the foundation of peoples' careers.
This model provides a measure of interest patterns as they apply to business work roles and work environments in the following core function areas:
- Application of Technology measures interests that are often associated with engineering, production, operations, and the general use of technology to accomplish business objectives
- Quantitative Analysis measures interests that are realized through problem-solving that relies on mathematical analysis
- Theory Development and Conceptual Thinking measures interests involving broadly conceptual approaches to business problems
- Creative Production measures interests that are realized through highly creative activities such as the development of new products or marketing concepts, the gernation of new business ideas, etc.
- Counseling and Mentoring measures interests that involve developing relationships as a crucial part of business work, such as coaching, training and mentoring
- Managing People and Relationships measures interests that involve developing relationships as a crucial part of business work, such as coaching, training and mentoring
- Enterprise Control measures interests that are realized through having ultimate decision-making authority for complete operations
- Influence Through Language and Ideas measures interest in exercising influence through the skillful use of written and spoken language
The real keys to job satisfaction are neither skills nor values, but "deeply embedded life interests."But the fact is, strong skills don't always reflect or lead to job satisfaction. Many professionals, are so well educated and achievement oriented that they could succeed in virtually any job. The answer is, only if the job matches their deeply embedded life interests. These interests are not hobbies — opera, skiing, and so forth — nor are they topical enthusiasms, such as Chinese history, the stock market, or oceanography. Instead, deeply embedded life interests are long-held, emotionally driven passions, intricately entwined with personality and thus born of an indeterminate mix of nature and nurture. Deeply embedded life interests do not determine what people are good at — they drive what kinds of activities make them happy. At work, that happiness often translates into commitment. It keeps people engaged, and it keeps them from quitting. Think of a deeply embedded life interest as a geothermal pool of superheated water. It will rise to the surface in one place as a hot spring and in another as a geyser. But beneath the surface — at the core of the individual — the pool is constantly bubbling. Deeply embedded life interests always seem to find expression, even if a person has to change jobs — or careers — for that to happen.
many people have only a dim awareness of their own deeply embedded life interests. They may have spent their lives fulfilling other people's expectations of them, or they may have followed the most common career advice: "Do what you're good at."
The eight life interests identified , as a key tool for managers to retain their best employees can be equally valuable for employees themselves. This model distinguishes itself from other career interest models in that it is activity-based, rather than based on general interest patterns. It's founded on the notion that interests, not skills, should be the foundation of peoples' careers.
This model provides a measure of interest patterns as they apply to business work roles and work environments in the following core function areas:
- Application of Technology measures interests that are often associated with engineering, production, operations, and the general use of technology to accomplish business objectives
- Quantitative Analysis measures interests that are realized through problem-solving that relies on mathematical analysis
- Theory Development and Conceptual Thinking measures interests involving broadly conceptual approaches to business problems
- Creative Production measures interests that are realized through highly creative activities such as the development of new products or marketing concepts, the gernation of new business ideas, etc.
- Counseling and Mentoring measures interests that involve developing relationships as a crucial part of business work, such as coaching, training and mentoring
- Managing People and Relationships measures interests that involve developing relationships as a crucial part of business work, such as coaching, training and mentoring
- Enterprise Control measures interests that are realized through having ultimate decision-making authority for complete operations
- Influence Through Language and Ideas measures interest in exercising influence through the skillful use of written and spoken language
Tuesday, January 12, 2010
Smart Buying and Credit
Prior to this course, I had little thought or regard over the way I purchased my goods whether it be eftpos, cash or credit. However, I did notice I spent less if I tracked my cash by putting my allowed spending amount into my wallet for my weekly expenses. It made me prioritise necessities and wants. It also meant there was no chance of me paying credit on my purchases by not paying the full balance on my credit card at the end of the month. So if you want to buy something, try to pay cash or lay-by.
Credit cards can be handy in emergency situations but they do lead to overspending and spending your paycheck early. I have had this problem several times and I need to rectify this. Firstly, one tip from Clitheroe is to always ask before handing over the credit card if a transaction surcharge applies. Secondly, always pay off your balance in full before the required date to avoid paying interest. Thirdly, shop around for the best deals if a credit card is necessary. Last year I was able to get a 0% balance transfer interest rate with no annual fees with HSBC which helped me enormously. Unfortunately I ended up creating another debt as I did not learn my lesson as my parents helped me pay off my debt problem. So I am in the process of paying it off again but this time on a NAB 0% balance transfer and this time I am being more careful with my money.
Having too many applications on your credit rating can tarnish your credit rating. One positive though is that if you show that you always pay off your credit card and that you are a safe person to lend to, your credit rating increases! Which means down the track I will have a higher credit rating than someone who may never have had debt by not owning a credit card.
Credit cards can be handy in emergency situations but they do lead to overspending and spending your paycheck early. I have had this problem several times and I need to rectify this. Firstly, one tip from Clitheroe is to always ask before handing over the credit card if a transaction surcharge applies. Secondly, always pay off your balance in full before the required date to avoid paying interest. Thirdly, shop around for the best deals if a credit card is necessary. Last year I was able to get a 0% balance transfer interest rate with no annual fees with HSBC which helped me enormously. Unfortunately I ended up creating another debt as I did not learn my lesson as my parents helped me pay off my debt problem. So I am in the process of paying it off again but this time on a NAB 0% balance transfer and this time I am being more careful with my money.
Having too many applications on your credit rating can tarnish your credit rating. One positive though is that if you show that you always pay off your credit card and that you are a safe person to lend to, your credit rating increases! Which means down the track I will have a higher credit rating than someone who may never have had debt by not owning a credit card.
Sunday, January 10, 2010
Savings
Saving is the key to financial security. As a student, I have many expenses and it is very difficult to save. Thus little savings can make a big impact on my lifestyle.
In chapter 3 of Money, it states that "no other factor is as important in becoming financially secure as saving. It's even more important than investment."
Savings = deferred consumption
It is not a spend later on account. Now that is a tricky concept which I had not realised before beginning this course.
Also a high interest online account is better value than term deposits. With term deposits, you can't access your cash in case of emergencies. It is fixed in so you can't take that money out.
From my research, Ubank is the online account to open (which I did and my brother and his girlfriend also have on my advice)! It has a high base interest rate of 5.51%, with a .10% bonus if you deposit $100 per month into the account. I had one question regarding my statement and the customer service was quick and polite. Very impressed with Ubank!
The next highest base rate was ME online savings at 4.85% with Bankwest being the next highest for max interest rate at 5.51%. I personally don't like Bankwest's offer as the rate drops down to 3.75% if you withdraw money.
Another important aspect when looking for savings accounts is to check the frequency of the interest calculation and when it gets paid into your savings account. As it takes time for the compounding power to kick in, the earlier you start the better!!
In chapter 3 of Money, it states that "no other factor is as important in becoming financially secure as saving. It's even more important than investment."
Savings = deferred consumption
It is not a spend later on account. Now that is a tricky concept which I had not realised before beginning this course.
Also a high interest online account is better value than term deposits. With term deposits, you can't access your cash in case of emergencies. It is fixed in so you can't take that money out.
From my research, Ubank is the online account to open (which I did and my brother and his girlfriend also have on my advice)! It has a high base interest rate of 5.51%, with a .10% bonus if you deposit $100 per month into the account. I had one question regarding my statement and the customer service was quick and polite. Very impressed with Ubank!
The next highest base rate was ME online savings at 4.85% with Bankwest being the next highest for max interest rate at 5.51%. I personally don't like Bankwest's offer as the rate drops down to 3.75% if you withdraw money.
Another important aspect when looking for savings accounts is to check the frequency of the interest calculation and when it gets paid into your savings account. As it takes time for the compounding power to kick in, the earlier you start the better!!
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