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Regardless of the investment your are investing in: mutual funds, bonds, futures hedge funds, options, commodities or any other.
You need to keep several points in mind when choosing a manager to look after your portfolio. Here are some basic tips for choosing an investment manager in any form of investment.
1. Long term performance
Anyone can be lucky in a short period of time, so do not put to much weight on short term spectacular gains.
Instead, look for solid long term performance over 5 years or more.
2. Downside volatility
It is always a good idea to assume you invested on the worst day of the investment and this is referred to as peak to valley drawdown and look at how long it takes to recover.
For example, if the worst drawdown was 30% and it took a year to hit a new peak in equity is that a risk you would like to take?
Always check the fees that are charged carefully and that any track record quoted to you is net of all fees.
As a general rule try and pick funds that have an emphasis on being compensated on performance only.
This does not guarantee investment success, but it is good to know that a manager has confidence in his ability to perform and has the same interest as you i.e an increase in profits made.
4. Make some enquiries
It is always good to make enquiries on how safe and secure your funds are particularly if you are dealing with an overseas company.
Remember the legal and protection of client assets in many overseas destinations may not be as stringent as in the major financial centres.
There are some other points you should keep in mind when deciding on how to invest and they include your risk tolerance and your ideal target returns.
1. If you see an investment that looks to good to be true..
It probably is! Many investors let their greed get the better of them and when they invest they let greed blind them to the reality and end up losing.
So what is a good performance for a high risk investment?
As a general rule if an investment manager can compound 30 - 40% return annually, you have an excellent return on your investment and very few managers achieve this level.
Always be wary of spectacular performance over a short period of time.
2. Stay clear of anything you don't understand
You really need to understand something about the investment you are getting into, particularly exotic investments such as wine, timber, art.
They very often sound great in theory, but these investments are very often scams and end in tears.
3. Take time to balance a portfolio
So, that you can achieve the best risk to reward that reflect your investment objectives.
You should read the diversification and risk analysis area of this site which will point you in the right direction.
Many investors hand over large amounts of capital to managers and areas of investment they don't know anything about and just listen to the sales patter.
This is a huge mistake and you need to do a bit of homework in all the areas listed above to get the best manager you can and the investments that suit your circumstances.
At the end of the day, a little investment in your time in these areas could yield you large dividends in the future and help you avoid losses
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