Essential investment questions

Capital at risk. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed.

Key considerations in making investment decisions

With so many investments to choose from, how do you make the right choice? It’s a process that can be made easier by asking yourself, or a financial adviser, these essential questions:

What are my investment goals?

Most people have investment goals in their life. Some are planning a comfortable retirement, for example. Others may be saving to help finance a daughter’s wedding, or to help children buy their first home. Managed funds offer a long-term investment strategy that could help you achieve your specific goals, whatever they may be. Your choice of fund and attitude to investment risk should reflect your individual circumstances, as different investment styles will determine the returns you can expect over differing timescales.

What’s my attitude to risk and potential returns?

All investments involve a balance between risk and reward. Typically, the more risk you’re willing to take, the greater the opportunity for capital growth and, equally, the greater the scope for losses. For example, if you’re nearing retirement, you may choose a lower risk approach, to lessen the possibility of your final retirement pot being eroded. Alternatively, if you won’t need to access your money for some years, you may prefer a higher risk approach, knowing you can adjust your strategy over time. You should discuss the risks you’re willing to take with your financial adviser.

How long do I want to invest for?

Your reasons for investing – e.g. school fees, retirement income, second home – can influence how long you invest for. It’s important to know your timescale. One to three years? Three to five? Five or more? In general, the longer your investment time horizon, the more opportunity you have to ride out periods of market uncertainty.

Do I want capital growth or income, or both?

Your final choice of fund will depend on whether you have greater emphasis on your savings increasing (in other words, give you capital growth) or providing you with regular income. Generally speaking, younger investors are normally seeking to accumulate wealth and are primarily interested in capital growth. By contrast, older investors often rely on the income from their investments to finance some of their everyday spending, and often want that income to be as high as possible. Other investors may aim for a combination of both.

Do I want to invest a lump sum, or save regularly?

It’s important to decide on the amount and frequency of your investment. Maybe you have a lump sum from an inheritance, or the sale of a property. Or perhaps you’re looking to invest a regular amount from your salary. Your final decision is likely to reflect what’s affordable within the overall scope of your finances and what your investments goals are.

Am I confident enough to choose my own funds, or do I need advice?

Experienced investors may wish to apply their own skill and judgement when making their fund choice. Others consider it wise to consult an independent financial adviser. Indeed, many lifelong investors still find it valuable to talk to a professional who has access to the most up to date market information. There are also investors who are confident in their choice of investment management company, but prefer to have their precise portfolio of funds chosen on their behalf. Your adviser can help inform your fund choice, and ensure the selection is suitable for your needs.

For more information

Many funds will provide a Key Investor Information Document, also known as a KIID. These documents cover important aspects about the product, including:

  • The risk profile
  • How the fund works
  • Charges
  • The investment strategy (what the fund manager will invest in)