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Eight tips to avoid mistakes when investing in funds

Eight tips to avoid mistakes when investing in funds

Are you about to invest (part of) your savings in an investment fund? First check whether you have fallen into one of the pitfalls below.

1. You can also lose money with mutual funds

Mutual funds undeniably have a number of advantages: they allow you to spread your wealth over a large number of shares or bonds. If something goes wrong with one of them, it doesn’t have to have a major impact on your investment right away.

In addition, they are managed by professionals who monitor the financial markets day after day. Something for which you may lack the time, the sense or the knowledge.

But that doesn’t mean you should go in blindly. Even with a strong diversification and professional management, you can lose money with mutual funds. For example, who and year ago in Belfius Managed Portfolio Emerging Markets faced a loss of 16.11% at the beginning of June.

If you need your money now, it can be a big disappointment. This also applies to investment funds that you may only invest with money that you can do without for at least a number of years.

2. Bonds can also fall in value

If the stock market drops, this also has consequences for investment funds that invest their assets in shares. Everyone agrees with that. However, far fewer people know that you can also lose with funds that invest in bonds. They assume that bonds earn a little bit of interest every day and should therefore appreciate in value. The boston dynamics stock ipo is found online. That is true, but another effect can completely negate this. If interest rates rise, investors will no longer be willing to buy old bonds that were issued on less favorable terms, unless they have to pay less for them and still get their intended yield. In other words, if its price falls. In the event of a sharp rise in interest rates, bond funds can therefore drop in value. This is all the more important if the bonds have to run for a long time on less favorable terms.

3. Pay attention to the inventory value in the newspaper

If you want to buy or sell a fund, you always do so at a price that you do not know. The price in the newspaper is lagging behind. If you buy a fund that invests in stocks, for example, before a certain hour today, you will have to pay tonight’s net asset value. This takes into account the prices achieved by the shares in the fund when the stock markets close. In practice, the calculation of the net asset value is therefore done tomorrow, after which the publication will appear in the newspaper of the day after tomorrow at the earliest.

Tip: Here you will find a selection of investment funds that are monitored by Spaargids.

4. Buy a fund that matches your investment profile

If you are a prudent investor who prefers not to incur major losses when the financial markets are adverse, choose a so-called defensive fund. But keep in mind that the price increases will also be limited. Those who count on a higher return must be able to deal with a greater risk and therefore agree to potentially higher losses in the event of a headwind.

In addition to the way you deal with possible losses, your investment horizon is also very important. How long can you miss your money? For example, if you need the money to buy a car soon, you don’t have to invest in an equity fund now.

5. Pay attention to the currency or country risk

Check what your fund invests in. Is that in securities denominated in a currency other than the euro? Then you also have to take into account possible increases or decreases in the exchange rate.

Or does your fund invest in certain countries? That also entails risks. For example, the listing of a number of funds that invest in Russian equities was recently temporarily suspended when Russia invaded Ukraine and the Moscow stock exchange was closed for a while.

6. Know what you are buying

If your banker advises you on a specific fund, let them explain exactly what you are investing in. Keep asking questions until you understand. If it’s too complex, don’t do it. Many investors rely blindly on the advice of their banker, but forget that it is primarily in his interest to keep his shop running.

7. Look at the costs

Those who invest in funds should not only take one-off entry costs into account. But also with annually recurring costs for the management of the fund and costs for the administration. They skim the yield. If you have chosen a fund with high costs, you are guaranteed to make your bank rich.

Tip: Look here for the range of investment funds from the various banks

8. Let your money not sleep

Times change. So don’t forget to take a close look at your portfolio of investments regularly. Do your investments still meet your expectations, because they may have changed in the meantime. Perhaps the plan has matured to buy a home? In that case you must be able to fall back on your savings. You should then no longer have any funds in your portfolio that can fluctuate sharply in value.

In other words: during a period of general interest rate decline, bond funds performed well. After all, the bonds that the funds had in their portfolios and that were still issued at higher interest rates increased in value. Now that the general interest rate is rising, the reverse is happening. Any further rise in interest rates now weighs on the value of the bonds your fund already holds.