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Choosing pension investment funds



Posted on: 20th September 2019

You will find that the majority of defined contribution pension schemes offer various investment funds. The number of funds offered by a scheme could be anything from merely a few to a few hundred. Some schemes, such as a self-invested personal pension, may offer greater investment freedom.

How do I choose which funds to invest in?

Your pension provider should offer information regarding your available fund options and each fund should be provided on a detailed fund fact sheet. Before investing in a fund, you should receive a Key Investor Information Document (KIID), which explains the investment objectives, charges and other information about the fund.

Types of funds

There are numerous investment funds available in the UK that come with a variety of options, from asset type to risk adjustment. These options can be managed on an active basis, where the fund manager makes the decision, or a passive basis, where the fund tracks the relevant index.

Investment risks

The aim of any investment fund is to produce medium to long term investment returns. However, the assets that a particular fund invests in will determine the risks of the fund. When investing funds into high-risk assets, they have the potential to produce higher investment returns. However, due to the volatility of the investment market, they may also lose value.

Comparing investment funds

When comparing funds that are similar, be sure to check the charges. These act as a drag on fund performance and the higher the charges, the bigger the impact. A good fund manager, however, may justify these charges by achieving greater performance. And although you may want to look at past performance as a guide, this may not determine future performance.

Investing in multiple funds

Many pension schemes allow you to invest in numerous funds, though there may be a cap on this. It is usually considered wise to invest in several as you won’t then rely on the performance of merely one single asset. Investing in numerous funds means that your risks are spread and is known as “diversification”. However, this type of investment can also increase the risk, so be sure to carefully consider your options.

Building a portfolio

If you choose to invest in multiple funds, you will begin to build a portfolio of investments. These will grow at different rates and, over time, those growing at a higher rate will begin to represent a higher percentage of your overall investments. As a result, the risk profile may change.

To avoid this, be sure to review your investment portfolio regularly and consider switching some of the higher risk assets into different funds. This will bring your portfolio’s overall asset allocation back to where you initially invested. Again, as the conditions of the investment market may change, you may need to review your funds to see if they still suit your needs.

Choosing and managing your funds with Haven IFA

If you need help with choosing funds and managing a portfolio, it is always wise to speak with an independent financial adviser. At Haven IFA, we are here to ensure everything you invest is done so with your future in mind. To learn more about our services, get in touch.