If you are looking for the best pension scheme, best ISA, best Off-Shore fund, best Unit Trust or best OEIC (open ended investment contract) - Good News, you may already have it but had not realised.
You could already have money invested in a pension scheme etc. or are looking to put money away for a rainy day and you naturally want to find the best one, we all do. What we mean is the one which will make our money grow the best and for that we need to know the best fund (America, UK Equity, European, Far-East, Property, Gilts etc). However, which ever is the best fund today will not stay the best for too long as other funds will take over. To keep up you will need to change your fund selection (NB NOT your pension company - just the fund selection known as switching). At Fundrider we dont sell investment products but we do point you to the best performing fund in YOUR investment product and alert you when things change so that you can always be invested in the best fund.
The ups and downs of the many investment markets can make the whole thing seem a bit like the childs game 'snakes and ladders' but investing for your future is not a childs game and it pays to know what you are up against when seeking advice
'Fund Switching' is probably 'THE' most important aspect of any investment or savings plan, be it a Pension, ISA, PEP, Off-Shore Fund or Insurance policy, more important even than tax free growth, after all what is the point of tax free growth if you don't get any growth? Only a few advisors will even mention fund switching and before you reach the end of this page you will know why.
Everyone knows shares go up and down, you might think it obvious that when petrol prices rise companies such as BP will make extra profit and the share price go up whilst petrol consumers such as a bus company will have their profits cut and the share price fall, and that it would make sense to sell Stagecoach and buy BP.
People can make a very good living from doing this sort of thing.
Exactly the same sort of thing happens with funds so why Oh why is the facility to switch funds not utilised more?
A good question and the answer seems to be that you are conditioned to low expectations from such investments thinking 10% PA growth is acceptable, even good.
Conditioned by your advisor, by the investment companies and even the regulators who demand low growth projections on quotations.
YOU are the only one who will benefit from better growth, you don't have to save till it hurts to achieve more money in your pension fund or more money for your child's education and it is up to YOU to take action for no one else is likely to.
Ladder one. The benefits of switching
Whichever company you have invested with, Legal & General, Norwich Union, Friends Provident, Fidelity, Skandia etc., any Pension arrangement, (including Stakeholder and SERPS replacements) ISA, PEP, Unit Trust, OEIC or Off-Shore Bond will offer an extensive range of funds to choose from or to spread your money over, such as a UK Equity fund, Gilt, Property, European, American, Far East and so on.
These funds go up and down at different times and growth rates.
Knowing which fund is growing best at any time and being able to move your money into it (known as switching) is 'key' to getting substantially better growth from your investment.
A few years ago a Japanese Smaller Companies fund grew by over 280% in a year.
You might not have invested too much in such a fund but what you did invest would have made a big difference to your overall performance.
Did anyone tell you about it (whilst it was growing)? If not, why not ?
Depending on your time frame, getting the fund choice right can mean two, three, four or more times as much money when you need it.
What Would That Mean For You ?
Money doesn't always bring happiness. People with ten million pounds are no happier than people with nine million pounds. Hobert Brown.
Snake one. The cost of picking the wrong advisor.
So let's take a closer look at what you need to think about.
Investment money should, almost always, be considered long term, even if you like to chase the best interest rates in the market and therefore never 'lock it up' for more than a few months at most, don't confuse it with being short term money, it may never be spent and is therefore long term.
In the long term (5yrs +) equity investments have almost always outperformed bank deposits but their volatility can be a problem.
This volatility can actually work in your favour if you keep your eye on the ever changing situation and adjust your investment fund choice accordingly.
However, even when made aware of this aspect most people want to leave it to someone else, or worse, ignore it altogether.
You may decide to seek advice and will probably be told that in the first instance you should look for any tax breaks such as ISA's, pensions and then perhaps off-shore funds.
All very good but when it comes to the real crunch, deciding which fund or funds to invest in, the advisor often has a conflict of interest with you.
You want to maximise your investment without taking an unacceptable risk, this will require monitoring and even changing the fund choice from time to time.
They may not have the necessary level of authorisation, expertise, time, experienced staff or back office systems required to be able to offer such a service, and will therefore probably suggest a 'managed' fund as the most suitable. This fund invests in UK equities, property, gilts and some overseas equities in fact a bit of every thing thus spreading the 'risk' (an easy sell), but managed funds dilute performance as you will see, and unless they have set their business up to offer a fund switching service, spending time, effort and money to improve your investment does little for their bottom line.
Advisor firms are paid a front end commission of up to 5% and a fund based or trail commission of around 1% per annum (often more in the case of a pension fund), so if they are not prepared to offer a decent service use someone who will.
Ask the investment company to move your business onto the central agency and rebate the annual management charge if you don't get a fair deal.
Snake two. The Managed Fund. (A.K.A. Fund Of Funds)
Probably lack of knowledge prompts most people simply to invest in the 'Managed Fund' and are often encouraged to do so by their advisor.
It is easy to sell the idea of a spread investing in a little of everything.
It fits a medium risk investor and most people are willing to be recorded as medium risk. It can be justified to the regulators, does not require expensive ongoing monitoring or other administration, does not require too much knowledge on behalf of the advisor and should give a better return than a bank deposit. ..... HOWEVER ..... Let us take a closer look.
First let us compare the amount of money invested in the managed fund against other funds within the same company's product range and compare the relative growth rates.
Figures released a few years ago by Standard Life, showed that there was 5,531 million pounds in their Managed Fund which had gained 30% over the previous 5 years compared to just 225 million pounds in their American Fund which had gained 58% over the same 5 years.
Twenty times more money invested a in fund which performed roughly half as well as another (offered by the SAME company)over a sustained period.
Research any company stats over different time periods and you will find a similar story.
A thinking person must ask WHY?
An advisor may tell you that the higher 'Risk' associated with the American fund is the reason.
Don't believe them, in the same Standard Life figures their Property fund, which is classed as less risky than the Managed Fund, stood at 899 million pounds and had grown by 85% in the same period.
A fraction of the money invested in the Managed Fund but with almost three times the growth and a much lower risk.
The truth is a mixture of self interest on behalf of advisors, and complacency on the part of their clients.
If advisors knew this was happening, why didn't they tell their clients and if they didn't know - well, lets move on.
Even if your on the right track, you'll get run over if you just sit there. Will Rogers.
The money in the Managed fund is normally invested into the company's other funds but with pre-determined maxima and minima in each.
You are therefore likely to have some money invested in say the Japan fund even at times when it is literally a 'Dog' and a maximum of perhaps 8% when Japan is 'flying' like a 'Golden Goose'.
The UK Equity fund normally makes up between 40% and 60% of the Managed fund, imagine the effect this has when the UK is underperforming other markets, which it often does.
Did you know this was how a 'Managed' fund worked?
These limitations affect the performance of 'YOUR' investment.
The With Profit fund (another easy sale) also hides some unpleasant facts.
In good years some of the profit is held back and used in poorer years to keep the fund 'growing', thereby smoothing the performance and reducing volatility. If your policy matures in a good year some of the growth is likely to be held back, so you lose out.
The end of 1999 saw the markets start a fall which lasted much longer than previous falls and resulted in the With Profit funds applying a Market Adjustment Factor which reduces your fund on payout.
They can keep showing 'growth' but when you come to cash your investment the truth hits.
It is rumoured that at least one very well known company has used money from the With Profits fund to pay their costs in the recent Pension and Mortgage Endowment Reviews, so you lose out again.
It doesn't matter if you're rich or poor, as long as you've got money. Joe E. Lewis.
Snake three. An Industry 'Secret' (And the affects of regulation.)
There are a small number of financial advisors who do offer a fund switching service to their clients but of course they have to charge for this service.
They have a duty to ensure no client invests in a fund which is above their personal risk / reward criteria without some money being invested in lower risk funds to give a balance.
This balance has to be monitored and a record kept of any switches made.
They might have to make a switch over several days because of the amount of money involved when switching for a number of clients.
Sometimes a switch can occur at an inconvenient time (Christmas Eve for instance) which can cause costly administrative difficulties.
No wonder so few advisors offer such a service. (circa 1%)
Click here to read an American article on the same subject.
If you do have one, hang on to them, for they are like Chickens Teeth and well worth their fee.
When a firm requests a switch for their clients it can result in many millions of pounds being moved from one fund to another which has caused some leading companies to block a switch or restrict the number of their funds that can be used by a particular advisor firm.
There is even a case of one fund supermarket refusing to do business with a Financial Advisor and threatening to report them to the regulator for 'trading', a reportable event where money is reinvested into another fund within three months.
What can possibly be wrong with someone trying to improve their lot or that of their clients ?
Companies boast about their numerous fund links in order to get your business then shy away when you try to use the potential the investment product offers. Why ?.
When you think about it, it seems the whole industry, is conspiring to keep you in the dark about switching and fail to explain its' potential benefits literally keeping it a 'secret'.
Ladder two. Beat The Negatives.
Be aware of how some investment companies can react to fund switching, now add to this the fact that advisors are restricted in the services they can offer, to those allowed by their regulatory compliance departments and you begin to see a less than rosy picture.
Some compliance departments often fear the implications of recommending a client to switch into an 'inappropriate' fund (ie. a fund which does not exactly match a clients recorded risk/reward profile) and the shortcomings of many back office software systems to track and record changing fund selections. Often they are not prepared to thoroughly investigate non-mainstream activities, such as fund switching suggesting they cannot spare the time, and so refuse the authorisation for their members to provide such a service.
Remember the sketch of a machine gun salesman trying to sell his wares to a Crusader Knight who was too busy fighting a war to take an interest?
Not so funny when you realise that it is your money which could be growing better if he did take time out to investigate. There is none so blind as those who WILL not see
Decent software for recording clients changing fund selection, risk matching and rebalancing (for those who want a certain percentage of their money invested across several markets or in low risk funds), is very expensive and not viable without a significant number of clients use the service.
If you have an advisor, talk to them about fund switching and ask if they offer such a service.
Should they try to put you off, beware, they may well be influenced by self interest and regulatory factors, and don't be fooled by those who try to 'stick the tail on the donkey' once a year at your annual review which was probably arranged in the hope that you might invest some more money, market trends don't change just to suit your diary.
In the country of the blind the one-eyed king can still goof up. Laurence J. Peter.
Shake free from these limitations, TAKE CHARGE YOURSELF.
Ready to take a tour ? (Ensure you are not logged in)
First click on Testimonials for some very 'biased' opinion.
Next click on Performance then Legal & General and see for yourself how people Tripled their Pension.
Whilst impressive, these Switching History stats. only show what has been achieved by switching when the trends change.
You will see periods where several switches have been alerted with little or no gain for several months (sometimes even losses occurring, remember, other funds including the Managed Fund will be flat or also dropping in value at the same time).
Don't let this put you off as you will soon learn how to spot these times and can Achieve Even Better Returns by moving your money into the cash deposit fund when markets start to fall, and back when they start to climb again, without waiting for trends to establish themselves.
Click on Service and discover how the best fund is calculated and how you are alerted to trend changes as they develop.
Click on Companies to check if your Investment Company and products are covered by the service.
Click on Login user name visitor and password evaluation
You will find lots of helpful navigation once you have logged in including a Forum and some useful 'Tips' (there are several forums for various user groups).
To reach the heart of the site, once you have logged in click on Portfolio where a selection of different companies and products are listed (you will choose these once you become a subscriber) showing the current Fundrider Choice, the date it became the Fundrider Choice and a graph icon which links to the graphs.
Click on Tutorial for an explanation of how to interpret the graphs.
As well as two pre-selected funds you can choose to graph any of the funds in that product range, just select one from the drop down menu and press 'redraw graphs'. Clicking on either graph will enlarge it.
Underneath the graphs is a list of all the funds available, where you can select performance over a number of different periods (useful to show what other funds to consider if you intend to spread your money around).
TIP. Never invest your money in anything that eats or needs repairing. Billy Rose.
From the graphics page you can open a new browser directly to your investment company to action any fund switches or get further information. You should also use this link to register with your investment company to use their on line switching service.
There is also a connection to Morningstar where you can find a whole range of very useful information on funds.
A subscriber phoned recently to ask if we had any information on a 'New Europe' fund he was considering. He was able to speak and use the internet and so we opened 'Morningstar' clicked on 'Fund Companies', selected the company from the drop down box, clicked on the 'New Europe' fund, and from the wealth of information chose 'portfolio'. In the top ten holdings section we found 15% was split between a Russian Oil company and a Russian Gas company. This knowledge influenced his decision on how much to, and even if he should, invest in the fund.
Risk / Reward.
Don't be afraid of taking charge yourself, try it out with just a small percentage of your money, spread it over several funds in order to find a risk balance which you are comfortable with, or simply ghost the Fundrider Choice for a while until you feel more confident.
Once you start using the system, if a fund is signalled which you feel is a bit too risky for you, simply invest in another 'growing' fund you are more comfortable with, or the cash fund, and await developments. You will soon learn how to find other growing funds.
Register with www.iii.co.uk (interactive investors international). You can register your fund/funds there and if the fund price should fall by say 5% you will be sent an email. This early alert will enable you switch to cash, if it seems prudent, and wait until the markets settle down.
When you do finally invest actual money however, the adrenalin will really start to flow and don't worry about switching charges, these vary, with a pension arrangement for instance it is typically 20 pounds each after the first free switch per year, BUT...
Improved growth will eat up charges.
The safest way to double your money is to fold it over once and put it in your pocket.
Frank McKinney Hubbard
What to do now.
You have seen examples of outstanding growth achieved by switching.
Compared the results with the results of various Managed Funds.
Have read testimonials from both individual and advisor firms regarding their experiences.
You know the reasons behind why the whole industry is keeping 'Switching' a secret at Your expense.
You have seen how to control investment risk
Now it is up to YOU. It's your money and your future.
Register now and begin to take charge yourself.
You will be putting your trust in mathematics and yourself !
For just 10 pounds a month you can 'Unlock Your Investment Potential'.
We believe this is a unique service, but if you find anything like it elsewhere at a cheaper price or if you are not satisfied with the service within three months you can have your Money Back.
For a free 'personal' one month trial using your own investment selection or if you have any further questions email john@fundrider.com.
