How to choose an investment fund in 5 steps

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According in the US there are almost 6,000 investment funds in which you could invest your money. There is no master method that guarantees success when choosing an investment fund or another, but we can define some steps that will help you make better decisions.

5 steps to choose an investment fund without dying in the attempt

Know yourself and know your goals

A message applicable in many areas of life that we are going to lead to the world of investments. Knowing yourself as an investor means knowing at what level of risk you feel 100% comfortable. Also think about what your goals are and what your needs are, which takes us to the second step.

When are you going to need your money?

The time horizon of the investment will be related to the risk of the same. If you are looking for a short-term investment because in a short time you will have a significant expense, you will have no choice but to opt for funds with higher volatility in search of a decent return. If your aversion to risk does not allow it, there are better options than an investment fund.

However, if your son has just been born and you invest in a 20 year old fund for your university, the short-term variations will not matter. This is one of the most important points that you have to take into account when choosing an investment fund.

Analyze the trajectory of the funds

Investment funds , as if they were football, have a classification based on the performance obtained . That classification is divided into four equal parts, called quartiles . In the first quartile there are those with the highest profitability and in the fourth quartile the least.

Seeing the background of a background will give you important clues. For example, if you have been jumping from the first quartile to the third, then the fourth and back to the first means that your annual performance has been anything but constant. If you invest in that fund you can have a great year, or a disastrous year …

A tip: the funds that have remained stable in the second quartile are usually a good choice, but do not limit yourself to them when choosing an investment fund.

Controls the possible losses

Nobody gets into an investment fund with the idea of ​​obtaining losses but, friend, shit happens . When you compare your possible investments, take a look at VaR (Value at Risk) . It is used next to the confidence level and is used to calculate your level of exposure to losses .

A VaR 5 and a confidence level of 90% means that if you invest in that fund you have a 90% chance of not losing more than 5% in a certain period.

Be very careful, because the calculation is based on statistics only. Although the confidence level is 99%, there is still another 1%, remember, shit happens


We are talking about how to choose an investment fund, but we can not stop commenting on the enormous benefits of diversifying your portfolio to reduce risk exposure .

A very positive aspect of the funds is that they allow you to invest almost in any type of assets and sectors. Analyze each fund separately, but with a balanced global strategy.

And besides all this, check how your investment evolves , but without obsessing. If it is a long-term fund, with an annual review it will be more than enough. You made a decision, trust your criteria now.


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