The risk that you want to take and the timeframe, or investment horizon, that you have to invest over is essential in determining what type of investment is suitable for you. Are you comfortable experiencing periods of volatility with the potential for greater returns over the long-term? Or would you prefer to invest in assets that offer gradual but constant investment growth?
At a basic level, the types of assets managed funds invest in can be split into two camps: Growth and income. Growth investing seeks out investments that are deemed to have good growth potential with the aim of maximising capital gains. These typically include investments like shares and property. As the term suggests, growth investing is designed to deliver higher returns over the long-term. Income investing on the other hand seeks to provide consistent, stable returns with much lower levels of risk and includes investments like fixed interest and cash.
In adopting a growth-oriented strategy in pursuit of higher long-term returns, there is also a higher risk that, in the short-term at least, returns could be well below expectations (or even negative). The principle is that with a sound and well-managed investment strategy, the lows will be more than offset by highs in other years with a satisfactory return earned over the long-term.
As investors move through their investment time horizon towards maturation, or when they require the money from their investment, income assets become more suitable due to their more defensive nature and stable character.
Investors are able to choose the degree of risk they take when they invest in diversified funds, such as AMP Capital's Income and Balanced funds available through RaboPlus. While these funds offer exposure to a mixture of both growth and income assets, no two diversified funds are exactly the same and slight differences in asset allocation can result in different levels of risk and performance outcomes. Diversified funds range from conservative, with a high allocation to fixed income and cash, which are designed to deliver stable returns, to growth-oriented funds, which have a higher allocation to growth assets.
Single asset class options like AMP Capital's equity and property funds offer investors exposure to a single type of asset such as shares, property, fixed interest or cash. The same theory applies when it comes to investing in single sector investment options. That is, growth assets (shares and property) have a much higher risk/return profile than the more defensive asset classes like fixed interest and cash. Due to a concentration in one asset class, single sector options are also generally more volatile than diversified funds which means returns can fluctuate more frequently.
Investing in managed funds offers several options from diversified investment solutions to single sector options. A clearly defined risk and return profile to determine what investment solution will suit you best is at the heart of selecting what type of fund to invest in.
Anthony Edmonds
Head of Sales and Marketing
AMP Capital
AMP Capital Investors offer a range of diversified and sector managed funds through RaboPlus. AMP Capital Investors is New Zealand's leading specialist investment manager, managing over $12 billion* for New Zealand investors. Our aim is to deliver superior investment performance for our clients. Reliably, consistently and repeatedly.
With almost 200 in-house specialist investment professionals across New Zealand and Australia and a carefully selected global network of investment partners, the AMP Capital Investors group offers significant depth and breadth of investment expertise. Our approach enables us to offer world-class investment solutions to create greater wealth for our clients through better investment decisions and opportunities.