I assume at this moment you are already invested in mutual funds; however, if you are still not, it’s never too late to start filling out those application forms.
I have decided to share an idea I discussed with a client who wanted to invest in the equities market, but had no experience yet in that realm. Although my discussion with the client was brief, I will expound the thought in this article. His situation brings forth the ideal notion of using Mutual Fund as a stepping-stone to enter the stocks market.
Now, I would like to share the idea on how to maximize the returns of your mutual fund investments. This idea is fairly simple: using the profit gained from the initial investment to further acquire other mutual fund products, and later using the consolidated returns to enter the equities market then ultimately becoming your own personal fund manager, diversifying in other investment vehicles such as bonds and money market instruments, without the necessary entry and exit fees.
Although if one analyzes the historical returns of the mutual fund companies, their performances are tantamount to a roller coaster ride—dipping and flying alternately year after year but generally ending up a notch higher than their previous figures.
One could create a multitude of models that would show varying end-results, positive and negative, depending on the personal outlook or agenda of the person doing the model.
Skipping the complex world of statistics, the basic premise of this article is to encourage investors to go out of the comfort zone created by conservative minds and explore the different dynamics in the investment world.
A Php20,000 seed money laced into an equity fund that would generate a low 0.25% return in 6 months, or P5,000 profit, would be an ideal start. The 0.25% profit could then be used to acquire another equity fund to spur another growth in the overall portfolio.
To expedite growth, the investor should consider injecting additional money into the existing funds whenever the opportunity arises. Bonus money, extra money, salary—these are all valid sources of additional funds.
The caveat here is that investors should have the long-term mind-frame. A state of mind to which an individual should be comfortable continually investing in the next 5–10 years.
I saw this interview on ANC’s show “On The Money” in which an investment advisor provided the idea that investors or individuals should not go into the equities market thinking they would be rich doing so, because they will not. Rightfully so, the same thing goes with mutual funds.
These investment vehicles were made to preserve and increase the value of an investor’s money. There were exceptional times where institutions and individuals made hefty returns, but it is prudent to never dismiss the fact that lives and huge sums of money were lost as well.
Maximizing the return on mutual funds is simply a way for your money to make more money. Compounding interest done manually.
It’s fun and healthy at the same time as it creates the opportunity for your brain to function at its fullest. Live creatively whilst basking on the glory of your returns!
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