HEALTH MATTERS 107 Personal finance


consistent returns than using an actively managed fund investing in the same market. Be wary of such claims because sometimes the people making them have poor active management records. The main difficulty, in my opinion, with a managed fund is that it has to have a certain exposure at all times to the asset classes in which it invests. So, for example, when markets were collapsing a few years ago a managed had to remain exposed to shares.


Whether you want indexed funds or actively managed funds if you took an active role, along with your advisor, you could have more control and may avoid the pitfalls of a managed fund. This is a big decision to make and will require a lot more input from you.


If you do decide to embark on moving


away from the managed fund approach you can look at what other funds are available from your provider. Most companies have a full suite of funds to choose from. The funds are usually divided up geographically or by sector. So, for example, you might want to invest in Asia or only in financial shares. Alternatively, you might want to have some exposure to commodities. Some people believe it is around now you should consider investing in Irish or UK property. It is likely that if you and your advisor construct your own portfolio there will be a fund to meet your investment appetite. Remember some basic rules when constructing your portfolio. Take into account other investments you might have outside of the AVC. For example, if you own investment property, is it wise to invest more in property? Try and design a portfolio using a core and satellite approach. At the centre of your investment, about 40-60 per cent of your fund should be invested in a safer, steady moving fund. Then make three or four


PICKING A FUND MANAGER


Review its history, is it a consistent performer? How does it compare to its peers who invest in the same market? Is it an actively managed fund or an index fund? Has the investment team had any major changes recently? What are the charges for investing in the fund?


investments of 10-20 per cent each into higher risk satellite funds. These funds will have more risk associated with them but the more risk you take the more potential return you


“Whether you want indexed funds or actively managed funds if you took an active role, along with your advisor, you could have more control and may avoid the pitfalls of a managed fund.”


can expect. However, be careful with risk. If you are more than 10 or 20 years from retirement, you can certainly afford to take some risk. But if you’re closer than that you need to consider moving part of your fund into safer options.


Many life companies provide a service like this automatically, but you need to request it. They will move some of your fund out of your more risky investments and into safer options like bonds or cash several yearss from retirement. They do this on a systematic basis on a month-to-month or year-to-year basis. They might start five years from retirement and move 20 per cent of your fund per annum into the safer alternatives. This means if in the year before you retire the markets collapse you will only have 20 per cent exposure.


Be careful here and keep communication open with your advisor, an annual review is a must because you may change your plans and you may decide to retire earlier or later and your advisor; needs to be aware of this to make appropriate adjustments. Designing your own portfolio with your advisor may seem like a lot of work, but if you can do it properly and review it regularly, it will pay off. If your fund outperforms by even one percent per annum it will make a significant difference to your retirement.


JARGON BUSTER


Asset Classes – These are areas you can invest in that they typically consist of cash, government or company bonds, property, shares and / or commodities.


Diversification


Quite simply spreading your risk across different asset classes.


Fund A collection of customer’s money which is then invested on everyone’s behalf in the same way.


Actively managed funds


This is where the decisions on where to invest are made by individuals and teams.


Indexed Funds These are funds that invest based purely in the size of the companies. There is no human input in selecting the stocks/ shares.


Sector Funds


A group of shares put together because they operate in the same industry e.g. industrial, financial or pharmaceutical.


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