Laconically stated formula on information and advertising materials of banks or investment companies.
For a novice investor, past returns are often the only decisive criterion. A more experienced investor would make me decide based on more data than returns and profits.
A one-sided focus on the performance of investments, such as stocks, mutual funds or investment certificates, is poor. With each investment, the investor must take into account that hitherto interesting returns may turn radically in the future and fall into losses.
Short charts, little information
Despite the magical phrase “past returns are no guarantee of future returns”, some financial institutions skillfully mix short-term returns with longer-term losses in promotional materials. What’s up? Imagine that an investment company’s portfolio manager is faced with a decision as to which fund he manages will be promoted to end consumers – investors.
Information obligations on past revenues will be met. The leaflet shall appear in small print somewhere on the back. The front of the leaflet shows a nice graph of how the fund has currently stood in recent years. It is attributed to this that the fund invests in such and such assets, which have a good long-term outlook and the whole world longs for them.
Of course, it would be more interesting for consumers to be informed about the entire period for which the investment, in our case a mutual fund, lasts. He would definitely think better about where and how much money to invest.
How to decide on an investment
If you are going to invest in mutual funds, for example, and you have no experience, get acquainted in advance with how everything works. In our case, these are the types of open-end mutual funds on the market, what they invest in, for how long and what returns they achieved during their existence.
Choose the type of fund you want to invest in. If, for example, it is an equity mutual fund, choose the subject of its investment. The funds can invest in high-quality US stocks called “blue chips”, but also in stocks of companies operating in emerging markets such as the BRIC countries (Brazil, Russia, India and China).
Each mutual fund publishes a prospectus in which it informs investors in detail about the operation and focus of the fund. Once you have read the prospectus, all you have to do is put the money in the fund and leave it there for at least a pre-determined time. Don’t underestimate the recommended investment horizons.
When to choose revenue
Collect returns when your mutual fund assets have increased. You can usually tell this from the summary statement. For example, if you have invested 500 crowns every month for five years, with the first investment being five thousand crowns, the value of your investment portfolio should be at least 35 thousand crowns plus an appreciation of inflation. However, if you do not outperform the aggregate investment, leave the money in the fund and wait for the capital markets to calm down and reach “past returns”.