As with every type of investment, there are certainly some dangers associated with managed funds. As long as you consider the risks before investing your hard-earned money, you can be pleasantly surprised with a high rate of return on your investment. Just remember though, no one cares about your money as much as you do.
One of the dangers of managed funds is over-diversification of your assets. It is still important for investors to hedge their risks with diversification, but depending on a managed fund’s composition, there is a possibility that it will not outperform the indexes. That is due to the fact that managed funds can be composed of literally hundreds of stocks and the positive performance of one can be weighed down by the negative impact of the others.
Managed Fund Focus
Another managed fund danger is that investors may automatically assume that their money is well diversified, but not fully realize that a managed fund focuses on specific sectors. Consider if you are in a managed fund that is focused on the real estate sector. Surely you will be diversified in an assortment of investment instruments present within the managed fund, but the focus of your fund will solely be in real estate. You will need to diversify between funds as well as individual companies and stocks.
Many consider the advantages of managed fund investment strategies to outweigh the risk aspect of the investments. All investments come with some degree of risk associated with them. If you are interested in diversifying your portfolio by adding some managed funds to your arsenal, you need to make the final decision on your own.