Updated: Sep 28
It's not rocket science, but it's not simple either.
I had a few clients who admitted that they couldn't read the factsheet after requesting for me to send it to them.
Some prospects I work with tend to want a lot of information for very little in return - they want to look at the information and 'think about it'.
Which would be okay, but just because a Japanese manga is available online and completely accessible doesn't mean that I can read it. I need it translated first, and sometimes money is a complex language.
This honesty was quite inspiring to me and I felt the need to address this for my clients, and the people here too.
Despite the fact that I tend to be a convoluted writer, I hope that this is beneficial to you in your own journey.
And of course, I hope that you will choose me as your adviser in addressing questions about this matter.
Without further ado...
(If its TLDR, just the summary eh.)
· Funds provide inevitable growth over time
· Can be safer than the market and individual stocks/bonds
· Can yield more than the market
· Balances both growing your money and peace of mind while doing it
Name of Fund/Fund Company:
The fund name typically will include its fund management company.
Some fund companies are subjectively better or at least, more prominent in specific investment areas. Investment enthusiasts tend to take note and refer to these institutions as reputable, and play favorites.
Every fund generally contains between 30 to several hundred equities and/or bonds.
Each investment that you make will be split throughout the entire fund, so that in the event any one company crashes, the losses are minimal compared to purchasing individual stocks.
It usually tells you the general purpose of the fund. This is important because the purpose of the fund typically determines the kind of yield and risks that the fund managers take.
This can result in a fund that doesn’t have a very high yield but is very safe compared to its benchmark, or vice versa. It can also result in different positions and weightages, which will be explained later.
This gives you an indication of how long the fund has been performing [or backtested to]. Typically, this category shows you a brief illustration that can be broken down into:
a) Fund performance: The performance of the fund net of fees after the fund management fee has been applied.
b) Benchmark: What the fund is measured against. The benchmark indicates what the market performance would be like if you were not invested in the fund, but the market instead.
This result is shown gross of fees that you would typically accumulate from a index fund or ETF, unlike the fund performance that is shown net of fees.
As a result, funds that outperform the benchmark on a long term basis are often regarded as more reliable.
Sometimes they break it into categories of Including/Excluding initial charges, which are sales charges. These sales charges are optional and may not be charged depending on who and which platform offers you the fund.
Aka - where your money goes. Fund fact sheets do not typically disclose every single company but will at least give you a rough idea where your money has gone, either by 1) Geography or by 2) Industry.
Industry is generally regarded as better, more precise diversification than Geography, but both have their merits.
By looking at the asset allocation, Financial Advisors can present why it helps keep your money safe while it continues to grow. There are several sub-categories:
Equity: What stocks and where your money is invested in for both growth, value and dividends. If the price of the stock rises, your money rises with it. If there are profits, some will be paid out to you on a regular basis.
Fixed Income: What coupon-paying bonds your money is invested in, and where. If the bond fund holds without problems, you get paid interest regularly while your capital remains intact.
Credit Rating: A gauge of the bonds under your fixed income – a credit rating is assigned by external agencies for the probability that they can pay you what you owe you, and punctually.
The higher the credit rating, the higher the likelihood – but this also typically means that the lower the amount of interest. As a result, BBB bonds are typically favored over A-quality bonds since they historically have the best balance record.
Top 5 Holdings:
This tells you where the majority of your money goes. In a nutshell, a bulk of your performance usually depends on the names they actually bother to list. Of course, a well structured fund usually makes sure that even if the entire top 5 holdings goes down, you shouldn’t lose more than 10%.
Sometimes they can be broken down into both equity/issuer categories, which tell you the highest weightage of where your money goes for both stocks and bonds.
Typically holds disclaimers that protect the company from liability and to remind investors that investments are not guaranteed.
They may also talk about relevant factors like dividend payout structure, so that expectations and clarity is given to potential investors like yourself.
Through your understanding of the fact sheets as we go over them, I [the Financial Consultant] will be able to explain to you and justify why certain funds were selected.
While investment returns are not guaranteed, the value of the diversified market inevitably goes up given enough time.
The understanding of all the factors above, as well as further complex terms help the adviser to select which funds will benefit you in the manner that is most suited to balance both growing your money and your peace of mind.
Your consultant can also advise on fund switching [in the event a better opportunity comes up or to minimize losses] at no cost to you.
Funds are typically selected for
a) Their safety compared to the risky market [less losses], or
b) Higher returns compared to the low-yielding markets [more returns], or
c) A combination of both
d) A cap on downside, with their unlikelihood to hit zero or massive losses like individual stocks.
Remember, the majority of investments should be long-term in order to be successful.