After the closure of the transfer window we found that less than 15 percent. eligible decided to remain in the pension funds. The other records therefore chose virtual accounts Social Insurance Institution. Does this mean that the majority of convicted solely on the state pension?
The capital market provides a lot of opportunities to save and invest surplus funds. Regardless of whether we receive a pension from Social Security or the ZUS and OFE, its potential height, according to some analysts, will be similar. Pension reform can thus achieve an important additional outcome – change the social thinking of the future retirement and indirectly contribute to increasing the attractiveness of individual ways of accumulating capital.
In the previous issues devoted much attention to retirement saving mechanisms within the framework of IKE and IKZE. This time we will discuss one of the ways to deposit funds in the market – investment funds.
Fund for each
The market of financial instruments offers a wide range of possibilities to multiply money, from the simplest, such as bank deposit (which generally should be treated as maintaining the current value of money while not as active investment) for increasingly sophisticated and complex.
The basic principle, before we start investing, should be to understand the product and all components of the process. We pay attention not only to the expected rate of return, but also to investment risk, which is associated with a given product, the likelihood of achieving the desired results, the possibility of early exit from investment management fees, liquidity, etc..
Segment funds investment, even though it may seem at the beginning rather complicated and complex, in fact, gives a tremendous opportunity for diversification of capital and risk. The only entity to create an investment fund Investment Fund (TFI) operating as a public company. While the fund itself is created as follows: Open Investment Fund (OIF), Specialized Investment Fund Open (SFIO) and Closed Investment Fund (FIZ).
Depending on the legal structure of each of them has different capabilities in the selection of assets, valuation, investment exit. At the beginning let’s focus on the most liquid fund open that sells and redeems units, representing equal property rights (for the category of the fund).The specificity of the fund, the manner of selection of assets, the permissible value of the portfolio, as well as the method and frequency of valuation are set out in the articles of association of the fund. It is an essential document, which should be familiar from the outset that the time has not proved that investing in high-risk fund, instead of – sustainable growth or capital protection fund.
A special feature of each fund is its design, and the market allows its various types, differences in the method of management of its values. Thus, the Act on investment funds permit: funds with different categories of units, with separate funds (umbrella funds), basic and interrelated, and even funds of funds (consisting of a portfolio made up entirely of units and investment certificates (FIZ) other funds investment, not necessarily belonging to the same TFI – this translates into lower operating costs and management).
novice investor should be interested primarily the type of investment fund and investment risk evaluation based on matched to the assets.
Opportunities Unlimited
Because of the way the selection of assets, the method of deposition of the level of acceptable risk can be divided into basic types of funds. Capital protection funds should be treated as those with moderate investment risk in which they are selected are primarily debt instruments (most of the Treasury, or Treasury bills), and little action. Such funds do not offer very high returns. Their purpose is to protect the assets from falling below a certain level. Secured debt securities are Treasury or central bank, regarded as risk-free instruments.
Working actively a small part of a joint-stock portfolio (depending on the adopted strategy formulated in the articles of association of the fund can be from a few to several percent) is actually a bonus, not a basis for this type of construction. It is widely accepted that the mixed fund may be attractive for people with average risk tolerance, ready to risk part of the potential for higher returns. Frequently profit will not be much different from that of bank deposits, though there are deviations from the standards in the short term.
Security and profit potential?
The safest fund is the one that selects only the assets of a group of securities with fixed income, namely: Treasury bills, bonds SP, municipal bonds issued by local government units. These types of funds are not interested in stocks, do not offer a rate of return much higher than bank deposits.
Fund a hybrid (combined), which can bring attractive returns during the bull market and protect capital during the bear market, there are balanced funds, in particular flexible investment funds. In this case, you should pay attention to a very important relationship – this type of construction fund’s investment portfolio management requires considerable skill. Even when the stock market rises mismatched assets may not produce the desired results. Too late response to deteriorating market conditions may, however, lead to a loss of part of the funds before the construction of the portfolio will be adjusted to the times of economic slowdown or even collapse of the market.
Thus, the flexible investment fund managers, may, depending on market conditions to completely rebuild the portfolio, and measures directed at those segments which at the moment offer the highest return for a given level of risk, or vice versa – the lowest risk at the expected rate of return. In the medium term this type of structures should bring better results than the market portfolio.
The selection of assets, and in particular their share in the portfolio, affects the risk level of the fund. The potential for superior returns offer aggressive funds (the highest risk) that invest in risky financial instruments, including up to 100 percent. portfolio in equities. It should be noted, however, that aggressive funds are directed to long-term investment, which eliminates the risk of entry at the top.
In the long-term savings is also linked to some interesting relationship, which is rarely mentioned. The presented results of the Funds for the period seem attractive in comparison with the benchmark, for which most simply accept the market portfolio. It turns out, however, that these results are close to each other, in the long term is not so easy to beat the market benchmark.
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Investing active
The situation changes significantly when we begin to manage their own units. Admittedly, this increases the cost of the investor, however, you can protect means that during a bear market and declines in the stock market you can invest yourself in debt securities, survive on a bank deposit or re-buy fund units safe, based on debt.
Applications can have simple strategies, for example. Decline in value of the shares to a certain level of results in their sales. Active investor is not afraid of a certain loss, because he realizes that this can further grow and make up for it will involve enormous difficulties and extra time. On the market there are special tools to monitor the measurement data units.
Historical data is not enough
It is often forgotten when choosing assets with transaction costs, commissions and charges, such as. Tax on capital gains. Even a well-chosen investment may disappoint when it turns out that most of the profits will be spent on management fees, commissions, taxes, handling fees (brokerage, which may be waived by purchasing units using online platforms). All costs associated with the management of the fund, the purchase and sale of units FIO are available in the statutes.
Finally, it is worth noting the positive impact of the purchase of Shares: First diversify investments due to the selection of assets (there is no limit to hold units or investment certificates of several funds with different investment funds), and secondly – frequently build investment portfolio comparable to that offered by the funds, or aimed to restore market index (eg. WIG20 WIG30 and others) is inefficient cost.
Instead, you can buy the units (or ETFs, but that is a topic for a separate article), which fits the structure of assets specified by the investor’s investment strategy. Thus, the potential of investment funds is in the fact that the investor does not need to manually choose the assets available in the market.
Bartosz Bednarz
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