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Fund selection

Choosing a fund is the most important decision in the funded pensions system. It must be done carefully and considering all the aspects. A decision should not be made on the basis of emotions, but with great consideration. However, you must start from somewhere. How to make a right fund selection?

1. Choose the Risk Level

When establishing the risk level, you should observe the investment strategy of the funds. This shows where they can invest the assets of the fund. The strategy of the pension funds is divided into four:

  • conservative funds that invest only into bonds and bond funds,
  • balanced funds that invest 25% of the assets into stocks or equity funds, the rest is invested into bonds and bond funds,
  • progressive funds that invest up to 50% of the assets into stocks or equity funds and 50% into bonds and bond funds,
  • aggressive funds that invest up to 75% of the assets into stocks and equity funds and only 25% into bonds and bond funds.

In addition to the terms and conditions of a fund, it is well worth to become acquainted with the portfolio of the fund. Only the real portfolio shows how much has been really invested into equity or bonds.

2. Choose the Style of Investment

The style of investment shows how the assets of a fund are managed. The styles can be grouped differently, but the most common option is to classify funds as active and passive.

  • The actively managed funds are managed actively. The main characteristic of the active style is the choice of equity based on analysis of securities. The fund manager will try to time the transactions and hit the peaks and bottoms of price fluctuations: by selling high and buying low, additional profit is yielded from the movement of the prices.
  • The passively managed funds are so to speak “not managed”. Based on certain policy, the fund manager invests all of the money into securities, other funds and stock indexes and achieves average rate of return of the securities market. The passive strategy is characterised by the constantly average rate of return without significant growth or plunges.

3. Choose a Fund

The fund management company plays an important role in choosing a fund. The investor of a pension fund actually chooses people to whom he or she trusts the pension savings. These people invest his or her money and in case of possible mistakes, they have to take the responsibility.

Universal model for action:

  • establish your investment aim,
  • choose the suitable risk level that meets your risk tolerance,
  • choose the suitable style of investment (active or passive),
  • choose the fund management company and the most suitable fund from among the funds managed by that company.