What are the basic steps to investing?

1. Determine your investment profile 
Your investment profile takes into account factors like your:

  • Short, medium and longer-term investment objectives.
  • Investment timeframe.
  • Attitude to risk and return.
  • Current circumstances, limitations and future prospects.

Risk/return profiling is a tool used by professional and novice investors alike when determining investment profiles. It can be a detailed and individual process, so it is best completed under the guidance of a professional financial adviser.

2. Determine your asset allocation.
Allocating your assets to match your investment profile is one of the most important steps in the investment process. Maintaining a diversified exposure to a range of asset classes helps to reduce risk. At the same time, it gives you more investment opportunities.

If you prefer to leave the asset allocation to the professionals, you can choose a diversified fund to match your investment profile. This way, you don’t have to worry about continually monitoring and rebalancing your portfolio to match your asset allocation strategy.

If you want more control over your investments, you may decide to make up your own asset allocation by selecting individual asset class funds, direct investments or a mixture of both.

A professional financial adviser can help you choose, implement and maintain your asset allocation strategy.

3. Implement your portfolio 
Your decision to invest directly or via managed funds depends on a number of factors including your time, discipline and confidence. One of the major advantages of managed funds is that you can access a much wider range of investments than you can by investing directly yourself.

Choose your fund manager carefully and make sure you fully understand what you are investing in. Factors to consider include the fund manager’s investment style, tax efficiency of their approach and the costs they charge.

4. Invest regularly 
Investing regularly can help smooth out market fluctuations, increase your portfolio value and average out your investment costs over time. Instead of investing a large lump sum, you invest smaller amounts at regular intervals. One of the easiest ways to implement a dollar cost averaging strategy is to start a regular investment plan with a managed fund.

If you'd like to learn more, we recommend reading our Plain Talk® guides.

What makes my investments go up and down?

Investment markets can be volatile, particularly over the shorter term. The sharemarket is influenced by a number of factors, including the underlying strength of the economy, political factors, industry trends and investor sentiment. On the other hand, fixed interest and cash markets are influenced by expectations for interest rates and inflation.

The overall performance of a managed fund simply reflects how the underlying investments are performing. As performance can be volatile in the short term, it is best to take a longer-term perspective (five years plus) when assessing managed fund performance.

What is a managed fund?

A managed fund pools together people's money to invest in a range of investments. Typically, a professional fund manager makes investments on behalf of investors in line with the investment strategy and objectives of the fund. Instead of owning the investments yourself, like when you buy shares directly, the managed fund owns the underlying investments on your behalf.

Managed funds provide a cost-effective way for both large and small investors to access a diversified mix of investments in a professionally managed package.

What types of managed funds are available?

Managed funds are available in single sector, diversified or multi-sector and specialist funds.

  • Single sector funds invest in one asset class such as Australian shares, international shares, property, fixed interest or cash.
  • Diversified funds include a mix of asset classes reflecting the risk profile of the fund. These are usually described as conservative, balanced or growth.
  • Specialist funds target assets with specific characteristics. High yield, sustainable or global sector funds are some examples.

There are also different types of fund managers with different investment styles. More on investment styles.

What are growth and income assets?

Asset classes are divided into income and growth investments. Growth asset classes include Australian and international shares and property investments. While growth assets have higher risk than income assets, they usually provide higher returns and outpace inflation over the longer term.

Income assets like fixed interest and cash generally provide a regular income stream and lower, more stable returns.

What is asset allocation?

Asset allocation is the proportion of your portfolio you allocate to each asset class. Research has shown that asset allocation contributes more than stock selection to long term portfolio performance, so it is an important decision to get right.

Some investors prefer to leave the asset allocation up to the fund manager. They invest in a diversified fund where it is decided for them. Others prefer to choose the investment mix for themselves. There is no right or wrong way providing your asset allocation is designed with your investment objectives, timeframe and risk/return profile in mind.

There are two ways fund managers decide their asset allocation policy - strategic and tactical.

  • Strategic asset allocation is where you set a long-term target for each asset class and stick to it. This type of asset allocation is set according to the investment objective, risk/return profile and investment timeframe.
  • Tactical asset allocation changes are made in the short-term based on the fund manager's view of the performance relativities of each asset class.
What is an investment style?

An investment style is a framework that guides the way fund managers evaluate and select the investments they make. It is like a set of principles based on the fund manager's beliefs about investment markets.

In the broadest sense, fund managers can be divided into index and active investment styles.

  • Index managers aim to match the performance of a market index by investing in all or a representative sample of the securities in the index.
  • Active fund managers will usually try to outperform the market index by choosing a selection of stocks they believe will outperform the benchmark index. The three most common active investment styles are 'growth', 'value' and 'style-neutral' (also known as core).
What is indexing?

Indexing is a way of gaining exposure to an investment market. Most investment markets have indexes that measure their value over time. Indexes cover almost every industry sector and asset class, including Australian and international shares, property, bonds and cash. Index funds invest in all or most of the securities in the index.

How is indexing different to active management?

Active fund managers try to outperform the index by picking sectors and securities they believe will outperform in the future. Rather than trying to guess which investments will outperform in the future, index managers track a particular market or sector. This means they invest in all or most of the securities in the index, providing diversification, which lowers risk.

What fees do managed funds charge?

The types of fees you may pay when investing in managed funds are outlined below.

Type of feeWhat is it?
Entry or establishment fees A fee for opening your account. This can be up to 5% of your initial investment.
Contribution fee For initial and subsequent investments you make.
Withdrawal fee A fee for withdrawals you make from the fund.
Exit or termination fees A fee for closing your account. Sometimes this fee applies if you close your account within a specific timeframe.
Ongoing fees Charged by all funds, this fee covers investment management, the administration costs of running a fund, such as accounting, legal and audit fees, fund documentation and investment costs. It excludes transaction costs covered in the buy/sell spread.
Switching fees A fee for switching between funds or investment options.
Adviser service fee or trailing commission A fee charged by your adviser for advice about your investments in the fund. An adviser may also receive other amounts as commission.
Buy/sell spread While not officially a fee, the buy/sell spread is the difference between the buy and sell unit prices of the fund. It reflects the transaction costs a fund incurs when buying and selling assets such as brokerage, custody costs, government taxes and bank charges.
Master trusts and platforms Master trusts or wrap account platforms can charge additional administrative fees on top of the investment option fees.

Not all funds charge all of these fees, so check the product disclosure statement for information on fees before you invest. For example, Vanguard does not charge entry or exit fees, contribution or switching fees (apart from the usual buy/sell spreads that apply to all transactions) and does not pay commissions to advisers

What managed funds does Vanguard offer?

Vanguard offers a wide selection of index funds for personal, business and SMSF investors.

Retail managed funds ($5,000 minimum)
Vanguard’s retail managed funds offer a choice of professionally managed single and multiple sector investment options. The minimum initial investment is $5,000 per fund. Find out more 

Wholesale managed funds ($500,000 minimum)
Vanguard’s wholesale managed funds offer an extensive choice of investment options and low wholesale fees. Find out more