232) How Many Funds Should You Invest In?
A very common and interesting question.
However, be ready to get many different answers from different people.
Some people will say 3 is enough.
Some people will say 10 is too many.
Some will say it depends on your goals.
Some will ask you what you want?
Here are few questions to ask and understand about Unit Trust Investment.
Is there any difference in charges between a few funds vs many funds?
Unit Trust companies normally charge a fixed percentage of the investment amount for the same fund type. Equity funds (eg 5%) are normally charged higher than bond (eg 1%) and money market funds (eg 0%).So, it is not based on the number of funds you invested into. It depends of the funds types and amount. The more the investment amount, the higher is the total charges.
Is it difficult to monitor too many funds?
Unit trust funds are managed by the Fund Managers. As a Unit Trust investor, you do not need to monitor the investments so frequently. Your Unit Trust Consultant will also assist to monitor your funds performance and recommend appropriate actions from time to time.So How Many Funds?
It all depends on your Investment (Financial) objectives. Each objective will require different amount and at different time.What are the common financial objectives that people have?
- Education money for children
- Retirement savings
- Money for down payment of a new house
- Money for down payment of a new car
- Money for a special holiday
- Emergency Money
- Money to start a new business
We have a lot of things that we want to do, but we have limited resources (money).
You need to be very clear on what, when and how much money required for each objective.
Once you have clear objectives, you can choose suitable unit trust funds for each objectives.
In unit trust investments, you can diversify your investments easily. Most unit trust companies charge the same either you invest into 1 or 10 funds. The reason being the Initial Service Charge are calculated based on a fixed percentage of the amount invested.
For example, a Unit Trust Company charges Initial Service Charge of 5% for equity funds. Your $100,000 investment will incur $5,000 Initial Service Charge. The total charge of $5,000 is the same either you invest into 1 fund or 10 different funds. Even if you invest 100 different months of $1,000 each, the Total Initial Service Charge will still be $5,000.
You can select as many funds as you want to properly diversify your investments. If you have higher amount, you can diversify into more funds. If you just start with $1,000, then just invest into 1 fund first. When you have more money to invest, then you can decide to invest into the same fund (top up) or invest into another fund (diversify).
This is one of the main benefit of Unit Trust Investments.
What if I want to Change into A Different Fund?
Even if you wish to change your investment, you can easily "Switch" from 1 fund into another fund with a minimal Switching Fee. Try to compare the fees when changing your investment from a house into a condo.If you had started with only a few funds, you can still switch some money into few other funds.
If had invested into too many funds, then you can consolidate into fewer funds.
The Unit Trust structure allows you to modify and adjust your investment portfolio and diversify your investments into different funds. It all depends on your investment objectives.
Summary
Do refer and discuss with your Unit Trust Consultants on the number of funds you need.You can always do switching to adjust the portfolio of funds. You do not have to be correct the first time, and can always rebalance later according to your investment needs.
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