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Investing in Mutual Funds
Diversifying Your Investments Like the Pros
The small investor just doesn't have the same opportunity for marketplace success as the large investor — or so it would seem. Billion-dollar retirement funds can afford the kind of sophisticated investment advice necessary to help their assets grow while managing risk. However, by investing selectively in mutual funds, the small investor can often participate in the strategies available to large retirement plan sponsors, and thus receive many of the same advantages, but on a smaller scale.
The Multi-Dimensional Philosophy
In reality, billion-dollar pools of capital face the same challenge as small investors — how to increase return and reduce risk at the same time. Many major pension funds work toward this objective by following a diversification strategy commonly described as multi-asset, multi-style, multi-manager.
Diversification as an investment strategy is not a new concept; what historically has set apart major pools of capital from other investors is their ability to practice a multi-dimensional philosophy of diversification, which effectively provides an investor with the ability to diversify within diversification.
Frank Russell Company is one of the early pioneers of this multi-asset, multi-style, multi-manager investment approach.
What This Means for Individual Investors
You may be telling yourself, "So large pension funds can afford all this diversification; they can afford to hire multiple managers, and so forth. But small investors, like me, just don't have the resources to spread around like the big guys." But the small investor, or participant in a company-sponsored retirement plan, can benefit from similar investment strategies by selectively investing in mutual funds.
All Mutual Funds Are Not Equal
It is important to investigate the investment philosophy of the funds you are considering. There are programs available that give you multi-asset, multi-style, multi-manager diversification, which may reduce risk and increase investment return.
Billion-dollar pension funds can do it — and so can you — with some careful investigation of the funds and services available to you. While it is still true that "you have to have money to make money," a little money, well-invested, can go a long way toward making a lot more.
Don't Try to Select Hot Managers
A dependable record of consistent returns is more important than getting the latest number-one performer.
Russell regularly conducts studies to determine how many managers consistently perform in the top 25% of their peer group. It is the rare manager who stays in the top quartile five years running. In one period, 1990-1994, not one of 244 money managers who started out on top was able to accomplish this feat.
The lesson is that if you choose hot managers expecting them to stay on top, you're likely to be disappointed. An alternative is to have an expert who knows the players choose managers for you, based on how likely they are to provide good returns on a consistent basis.
Nothing contained in this publication is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.
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Products and services described on these websites are intended for Canadian residents only. Information on these sites should not be considered a solicitation to buy or an offer to sell a security to any person. Persons outside Canada may find more information about products and services available within their jurisdictions by going to Russell's worldwide site, http://www.russell.com.
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© Russell Investments Canada Limited 2008. All Rights Reserved.
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