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When it’s time to invest your hard earned money, you may be drawn to commercials on television about fund managers or receive emails from people who claim to have an outstanding investment record. Even friends who have had a lucky run day trading the stock market may be asking you to invest your funds with them. Here are the factors to consider when choosing an individual or firm to manage your risk capital.
Research the Fund Manager’s Track Record
Whether you are investigating an established fund manager or a friend who claims to know what he’s doing, ask for their investing track record. Did they lose money last year or several years in a row?
Be sure to look at a wide window of time when evaluating the performance of a fund manager. A two-month winning streak may seem impressive, but that doesn’t mean that the next six months won’t see a downward spiral. Look at a three- to five-year track record and take other factors into consideration such as the general state of the economy during that time period.
Understanding the Fund Manager
Another factor to consider is communication with the fund manager. Inquire about his or her investment decisions. What factors are used to determine when it’s time to buy and sell? Can he or she explain these decisions to you in a way that makes sense?
A Systematic Approach
Is the fund manager using a systematic approach to investing your funds? He or she may be relying on technical analysis or fundamental analysis of a company’s economic performance. Make sure that decisions are based upon thorough analysis and a well-tested investment strategy.