3 Things to check before investing in an unfamiliar fund

Published on 20th March, 2023 at 12:00 pm

A friend of a friend made a fortune with cryptocurrencies, while your colleague knows someone who hit it big investing in the latest tech company. It seems like everyone is making a killing investing in new and sometimes unfamiliar options – and especially now with the cost of living rising so much, is it time you start investigating lesser-known funds too?

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In this article you’ll learn:

• Why partnering with a qualified professional is key to making a success of investing.
• What to check for when considering investing in an unfamiliar fund.
• How you can be rewarded for growing long-term wealth with Sanlam Group’s monetary reward, Wealth Bonus.

It’s tempting to believe in the need to be more adventurous in your investing when times are tough; after all, there is a more urgent need for higher returns now. “New investors are definitely taking more risks, especially for long-term investments,” says Nicki Blignaut, senior financial planner and principal at 2one2 BlueStar, authorised by Sanlam. “They have realised that despite what happens in the long term, more risk often means greater reward.”

It’s important not to forget that the news is also filled with stories where high-risk strategies didn’t pay off, like the collapse of the cryptocurrency exchange FTX that left investors billions out of pocket.

Cryptocurrency is now regulated – but what exactly does that mean? We found out.

The importance of investing with a financial planner

Whether you choose short- or long-term investing, low or high risk, it is important to discuss your financial goals with a qualified financial planner. “A financial planner looks at an investor as a whole and makes recommendations based on their specific circumstances,” Blignaut explains. Your financial planner is qualified and knowledgeable, and best positioned to help you achieve your goals. If you decide to invest your money on your own, you run the risk of missing important market information or not understanding the risks fully. Your financial planner is there to answer all your questions and help you grow your money at a pace and risk level that you are comfortable with.

One of the most important long-term investments you’ll ever have are your retirement savings. The Sanlam Cumulus Echo Retirement Plan is a retirement annuity (RA) that comes with built-in Wealth Bonus, Sanlam Group’s monetary reward for long-term wealth. By making financially responsible decisions and staying loyal to the Group through participating Wealth Bonus products, you automatically earn Wealth Bonus – a monetary reward that grows as long as you stay up to date with your payments or contributions.

When you take out the RA or the Sanlam Wealth Edge Endowment Plan, stay invested, and continue to make regular contributions to your investment, your Wealth Bonus grows along with it.

Learn about more ways to earn Wealth Bonus here.

Investing red flags to look out for

If you’re exploring the option of investing in an unfamiliar company or with a foreign-sounding asset manager, research and a healthy dose of scepticism will stand you in good stead. If something sounds too good to be true, it usually is!

Always keep your guard up and do more research when anyone promises massive returns or aggressively tries to sell you on a product. Look out for promises like:

• ‘Risk-free’ investments
• Immediate or guaranteed high returns and ‘instant’ wealth
• Pressure to buy into the fund immediately, for instance, ‘you have to buy this now’ or ‘everyone is getting in now’

3 Things to check before investing

In addition to making sure the asset manager is registered as a financial services provider (FSP) with the Financial Sector Conduct Authority (FSCA) on its website, Blignaut suggests you do your research on fund fees, financial planner fees and returns.

Ask yourself these questions

1. Fund fees

What are the total investment costs? Do these include all the admin and tax fees?

2. Financial planner fees

How much are they charging you? You can ask for detailed fee information.

3. Returns

Compare the fund’s past performance against similar funds. While history is no indicator of future performance, it could alert you to trends in the fund manager’s investment strategy.

“Make sure you look at all three considerations, because low fees with low returns mean less than high fees with high returns,” Blignaut cautions. The fees a fund or investment charges you have no bearing on the returns, so don’t be too charmed by low fees. Instead, look at the fund’s performance history and the strength and knowledge of the investment team.

Your best bet when investing is to do it in partnership with a qualified financial planner. Book a meeting with one today, here.