How Do You Choose A Fund?

There’s an interesting article at Reuters about the things that financial advisers look for in a fund, as compared with a private investor.

The most important factor for an IFA tends to be the fund manager’s track record, whereas private investors are more swayed by the strength of the brand, the fund’s past performance and the charges on the fund.

In my experience, there are many private investors who do follow their favourite managers around (by moving their investments around to the funds they manage, not in the stalking sense!), yet the majority probably are more swayed by past performance and the brands (and advertising can have a big effect on this – just look at the amount of coverage a manager such as New Star maintains in the run up to the end of the tax year, for example). Investors also tend to look at the funds which have performed well over the last year or two when doing their research, failing to remember that past performance is no guide to future gains.

You also tend to find that investors flock together like sheep, yet another rule of investing is that if people are piling into a certain fund, the best performance has probably already happened.

Charges are important, of course, as they can quickly eat into any gains your investment makes, but IFAs generally do not look at these when deciding on a fund.

What do you look for when choosing a fund?

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