Friday May 20, 2022

How do equity funds earn the most?

26 years old David m 2 stavebn spoen. One of them is entitled to a state subsidy and regularly in nm spo. David’s kind of building connection was started by his mother when he was studying to go, and the connection is without a permanent subsidy. On this savings, the number of people has been reached and currently there is a balance of 200,000 K. David would rd spoen the pension according to the value. He is attracted mainly by high returns in equity funds.

David wants to get the most out of his pension. It wouldn’t be a problem for him to figure out what to spend his pension on, but it’s the money his mother saved him, so he doesn’t want her to tell him that he’d throw it away right away. Rd would invest them.

David wants the pensions to work according to the fact that he will not need them for at least 5 years. He is also willing to take a high risk if he achieves above-average appreciation in the long run.

What is the risk?

How to properly understand the risk when investing in equity fund (but also in general when investing)? Risk means uncertainty where the return will move at the moment when the client will want to withdraw the invested pension. In equity funds, the value of an investment can fluctuate sharply. We issued and sold and in the moment when we withdraw from the investment.

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How to dream of risk?

1) Investin horizont
The investment horizon is the time in which we achieve a high probability of the required appreciation in a given investment instrument. For equity funds, an investment horizon of at least 5 years is recommended. Most investors who invested 1, 2 and 3 years ago achieve a high return. The average appreciation in equity funds is currently around 20% pa

This means that if these clients wanted to choose the pension to be invested, they would not lose, on the contrary, exit from investment with high input. In the same way, the value of their investment could have dropped by 15%. For example, some investors who invested in equity funds around the year 2000 still do not go to the value of the share certificate for which they bought then. That is why it is important to follow the set investment horizon. This increases the likelihood that we will not be disappointed with the investment.

2) Vbr investin společnosti
Choose a quality investment company. The best company with investment experience and history. We can divide investments into two or more investment companies.

3) Divided investment
Divide the invested pension into several different ones fond. It would be appropriate to spread the investment in different funds that focus on different markets. For example, we can invest in a fund focusing on European equities, in a US equity fund, in a Japanese equity fund. If we are willing to take the risk and are looking for high returns, then let’s invest in emerging market funds or in funds that focus on the shares of small companies.

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Where to invest?

As indicated in the Equity Funds, there are funds that are less risky and potentially valued, and there are funds where the risk of fluctuating value of the investment is high and the potential is valued equally high.

The first group of conservative funds includes funds, focusing on the shares of large, strong multinational companies. They can be companies such as Coca-Cola, Nestl, Vodafone, Nokia, etc. They are companies that have been growing for a long time and that’s just something. We do not expect them to be extremely numerous as in the case of companies that are just developing. Although the fund will first switch to these large companies at the present time very much (their rating is around 20% pa), in the long run we probably prefer to appreciate at 11% pa

At present, investors may be interested in investing in Japanese stocks. These funds have inportfolio such a large number of companies, but the growth is far beyond American and European funds. Some Japanese funds have issued 50% in the last year. The Japanese economy was at its peak last in 1984, and although it is now growing strongly, the jet has not reached its maximum performance. It is expected that the growth of the Japanese market will continue.

Risky investments include emerging market funds and small company funds. Developing markets include Latin America, Southeast Asia, Russia, and Eastern Europe. Funds concentrating on these regions show an increase of 30-40%. We will also find funds that have valued at 70% for the last year.

Funds focused on the shares of small companies so promise high returns. Probably not as high as in emerging market funds, but we can expect at least 20% growth here. The advantage of small companies is that they can more easily respond to changes in market conditions and their appreciation is therefore different, not the case with large companies. Just for imagination, is it a company? For example, some funds, looking for shares of small companies, choose between companies, their thorn capitalizationit is not $ 2 billion.


Let’s divide David’s portfolio into two. The first 100,000 K will be replaced more conservatively and the second 100,000 K more risky. Each of these two hundreds will go divided into several funds.

For investments in emerging markets, choose a fund that concentrates on several emerging markets at the same time, thus reducing risk. The size of David’s finances then looks like this:

  • European Equity Fund 30,000 K
  • American Equity Fund 30,000 K
  • Japanese Equity Fund 40,000 K
  • Developing markets of 50,000 K
  • He had companies of 50,000 K

With this distribution of investment, it is likely that the value of the portfolio will fall significantly below the original value. In order to achieve a significant base value, most of the market in the portfolio would have to decline at the same time.

The advantage of such diversification is also in the liquidity of invested funds. If the furnace only David hundred of the invested pensions needed two, not fulfills, I can choose from those funds that will currently earn.

If we assume the growth of David’s portfolio by about 15%, then the value of the investment after 5 years will be about 380,000 K.

Hints and tips

  • In the event of a decline in investment, do not panic and do not withdraw from the investment.
  • If you want to withdraw the value of the investment in the near future of the pension, move it, for example. to a money market fund, a bond fund or, in the worst case, to a bank, and thus you lock the deposit.
  • If you do not speculate, do not have the original distribution of the portfolio and stick to the set investment horizon. For equity funds, an investment horizon of at least 5 years is recommended.
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