Working out which funds to invest in

Deciding to invest in funds is not an easy decision, but if you decide that you do want to diversify your portfolio and invest in some funds, then how do you then go about making the decision as to which funds to invest in?

Well, there are various elements to chew over. For instance, what balance of assets do you want the funds you invest in to contain? Are you looking for growth or income? Do you believe that there are star fund managers out there who will deliver a great return above the market or do you think that the fund managers job is simply about making informed guesses, and if the latter you are not so sure about, then do you simply want an index tracking fund?

And then what about currencies: do you want to invest in any overseas funds... and then have the added complexity about how the pound does against that currency or those currencies.

Faced with all the choices, one of the most sensible things to do is to look at a range of funds that you narrow down from what you want to invest in, and then simply see how those have done in the past. There are various websites and newspapers that contain information on the performance of funds.

As ever you can drown in a sea of data, so one of the simplest figures and the easiest to understand, is just to look at the annual return of funds in a given sector. Look at the figures for several years, as this will also give an indication of how they performed when things got ugly a few years back and how the losses were mitigated (if they were!)

Whilst everyone knows that what has happened in the past doesn't tell you with any certainty what will happen in the future, you do need to look at the data to at least get a feel about the only absolutes there are - what has actually happened in the past!

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Working out which funds to invest in

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