Selection of investment funds

When selecting funds, the level of experience in investments should be analysed in detail. During the last trainings on Webinar Universe, we mentioned, m.in, such elements as:

• Investment objectives,
• time horizon of the investment,
• portfolio diversification,
• costs that have a significant impact on the outcome of the investment,
• risk tolerance
• and the fund's past performance.

Analysis of results

One of the very important aspects of choosing an investment fund is the correct analysis of past performance. Admittedly, it does not guarantee investment success in the future. However, a comparison of the rates of return generated by the funds in different periods gives an overview of the stability of the selected fund in terms of generated profits. There are funds that achieve record rates of return in leaps and bounds. And they make dizzying profits one year, only to be at the bottom of the list of the most profitable the next. And there are funds that generate smaller, but stable returns oscillating around more or less the same level. Another issue is the fees associated with the management of the fund, as they have a huge impact on the final amount of profits.

When analysing a given fund, the full period of the cycle from the bull market through the downturn to the bull market should be examined again. This allows you to obtain information on which funds are doing better when it comes to growth, and which are better at falling and which are able to generate above-average profits in individual phases.

The second important aspect of fund performance analysis that we talk about at Webinar Universe is the reproducibility of performance over given time periods. This type of study should be carried out by verifying periods ranging from one year to five years. This is the best way to check the stability of a fund, even if it is generating slightly lower but average returns.

Another aspect is to verify whether the fund's performance has not been affected by one-off positive or negative events. This is because it is an attribute indicating a stable level of generated profits, informing about a limited risk of greater imbalances in the future.

In addition, it should be remembered that the analysis of quotations and the rate of return on investments lasting from 1 to several years shows the effectiveness of the management of a given fund, which allows to estimate the level of profitability in the future.

Funds & Safety

The safety of cash entrusted to investment funds is based on several essential pillars. The first is the specific legal structure of the funds. This is because they have legal personality, thanks to which the assets of each fund do not depend on the assets of the Society, which protects the funds accumulated in the funds in the event of potential bankruptcy of the TFI, because it excludes them from the bankruptcy estate of the Society. We explain this aspect in our latest online trainings.

The second pillar of security is the European Commission, which, as the body supervising the activities of the funds, controls both the activity of TFIs and compliance with legal regulations. And in extreme cases of violations, it can revoke the fund's operating license.

The third pillar of security is the supervision of the depositary, which is one of the banks operating in Europe. And on whose account TFI keeps the funds. The depositary is entitled to exercise control over the management of the fund's assets, in particular issues concerning:

• Compliance with exposure limits and charges of receivables to funds.
• Pass valuation of assets in accordance with the law and the provisions of the Articles of Association.

The fourth pillar, which allows for the control of funds, is based on the mandatory and systematic disclosure of the fund's accounts by the fund's management bodies. Informing about the components of the investment portfolio, profits and costs of the fund. However, the obligation to publish reports applies to semi-annual periods.

When to invest and when to withdraw?

With systematic investment of small amounts in funds, the investment can be started at any time. Of course, economic fluctuations will have an impact on the price of participation units and the amount of units that can be bought for the same amount. However, with small deposits, these differences will be minimal.

On the other hand, in the case of a larger one-time investment with the intention of investing in equity funds, it is best to make a payment before the start of growth or at the latest with their inauguration. This is because this is the moment that gives you the best chance of achieving the highest possible profits. The farther the moment of entering the investment is from the start of the bull market, the less the value of the shares will gain in price. However, in the case of equity funds, the timing of the exit is no less important. It should take place before the onset of a bear market, i.e. a permanent decline in the value of shares.

In addition, before starting the investment, you should adopt an acceptable loss limit, which will be the moment of completion of the investment. The amount of the limit is, of course, an individual decision of each investor. It is important that the exit rule secures not only the initial capital, but also the profits generated by the fund. Therefore, before each start of an investment, it is worth setting an acceptable percentage threshold for loss, which will refer not to the value of the capital itself, but to the entire investment, including the profit generated by the fund.

Investing in funds, although it involves investment risk, has many advantages. Among the most important are the diversification of the portfolio by choosing a fund that invests in assets that suit the investor, which allows you to minimize risk. Ability to make small deposits. And determine the time horizon yourself.

However, it should be remembered that the success of any investment in TFI depends primarily on the choice of an intermediary institution in investing, which can be a Forex broker. And the selection of the fund itself, which will be tailored to the investor's investment capabilities and will meet their expectations. Choosing an investment partner is not an easy task, especially in the case of people who are just getting to know the world of investments. This is primarily due to the fact that before placing a broker on the list, they examine in detail the investment conditions proposed by the broker, the costs charged by it and, above all, its financial condition.

The selection of the fund, in turn, should be preceded by an analysis of the investment method, an assessment of the acceptance of investment risk and the related selection of an appropriate investment portfolio. As we mentioned at the Webinar Universe, the time horizon and, above all, the right time to enter and exit the investment also have a huge impact on the success of an investment.