How to choose a fund

09 May 2019

4 minute read

Choosing which funds to invest in isn’t always easy, particularly with so many different options to choose from. We look at ways to simplify the process.

Who's it for? All investors

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.

What you’ll learn:

  • How to do your own fund research
  • Why it’s important to check the charges
  • Why ready-made investments might appeal.

With thousands of different funds to choose from, picking which ones to invest in can seem a daunting task, particularly if you’re new to investing.

Of course, you’re not limited to investing in funds, with plenty of other assets such as shares and bonds on offer, but when you put money into a fund, it’s spread across a wide range of investments, which helps you to diversify your risk.

Remember that investing will only be suitable for you if you have a timeframe of at least five years, but preferably longer. That's because if there are any market downturns, hopefully this will provide enough time for your investments to recover, although it may not.

Bear in mind too that no matter which funds you choose, there are never any guarantees of a positive return. Investments may fall in value as well as rise, and you could get back less than you initially invested.

Here, we look at some of the ways you can narrow down your choices and choose the right funds to suit your needs. We don’t offer personal financial advice, so if you’re unsure where to invest, seek professional advice.

Start with some research

Funds cover a range of asset classes, markets and geographies, so a good starting point is to do a bit of research to help you decide which sectors or regions you think may perform well over the long-term.

You may for example, decide you want to put money into a tracker fund which aims to replicate the performance of the FTSE 100 index of Britain’s biggest companies, or, alternatively, you might prefer to adopt a more global approach, investing in companies worldwide. Or, if you are interested in a particular sector, for example, technology or property, you may choose to invest in a fund specialising in this area.

Bear in mind that it’s important to ensure your portfolio is properly diversified across a wide range of asset types and sectors, so that if one investment performs badly, hopefully other investments with higher returns will make up for any losses. This means you may want to choose five or six different funds to help spread risk.

Our Research Centre offers a number of tools and resources to help you research and find the right investments for your needs, whatever you’re interested in investing in.

Consider your approach to risk

As with all investments, the greater the potential returns on offer, typically, the higher the risk you must be prepared to take. For example, investing in an emerging market fund that focuses on countries with economies still in the development phase such as India or Brazil will be higher risk than a fund that invests in UK equities, so you’ll need a particularly strong appetite for risk.

It’s important to check that your fund choices match your approach to risk. However, whatever your risk tolerance, you’ll ideally spread risk by investing in a wide range of investments so you’re not relying on one region or sector too heavily.

Look into the fund manager’s track record

Before investing in a fund, you may want to check that its manager has demonstrated the ability to generate attractive long-term returns. Some managers are renowned for consistently strong performance over many years, making the funds they manage particularly popular among investors. If they are replaced, it may impact on performance.

You can read through the fund factsheets and Key Investor Information Documents (KIIDs) to find details such as fees, fund manager, and past performance. Our Research Centre also offers a number of fund tools and resources to help you do your own research.

To help narrow down the wide range of funds available, you may wish to consider those on the Barclays Funds List which, based on research, could be more likely to generate consistent returns.

However, bear in mind that past performance isn’t a guide to the future. There are no guarantees that a fund manager’s winning streak will continue, as even the best fund managers are unable to predict with any degree of certainty what will happen next.

Investigate the charges

Charges can eat into returns over time, so make sure you’re comfortable with the amount you’re paying. They are an important factor when choosing which fund to invest in.

If you pick an active fund, where a fund manager picks which shares or other investment assets to buy, you’ll typically pay an annual fee of between 0.6% and 1.5% of the value of the investment that you hold, which will be higher than for a passive fund. However, the cost will depend on the type of fund you choose, with specialist options such as a technology fund sometimes being more expensive than, for example, a UK equity income fund.

Passive funds, by contrast, typically track a market or index, such as the FTSE 100, and have annual charges as low as less than 0.1%. Again, these may vary depending on the index that is being tracked, and the particular fund you choose.

Explore ready-made solutions

If you’re looking for a simple solution to building a diversified investment portfolio, one option could be to consider ready-made investments. Each fund is made up of a mix of investments across different asset classes, giving you an instant diversified portfolio with global exposure. Each fund has a different balance of types of investments offering a choice of level of risk.

For example, Barclays offers five Ready-made Investments to investors, so you can choose the level of risk that you feel comfortable with for achieving your financial goals.

Bear in mind that ready-made investments won’t be suitable for all investors, and whether they are right for you will depend on your personal circumstances. Seek independent advice if you’re unsure where to invest.

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The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice. Tax rules can change in future. Their effects on you will depend on your individual circumstances.

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