Are mutual fonds a wealth creator?

By Christian Bartsch

The need for money to work

Investors and consumers with a significant financial savings can make use of mutual fonds. In Germany containership investments are some of the most popular investments. The export powerhouse Germany has a constant need for shipping in both directions. German factories need smaller parts from Chinese factories while they eventually export the higher value products that were made from the large multitude of components.

Nevertheless, investors that have a portfolio above 1 million euros will diversify their assets. They invest in tree plantations, chemical innovation and other opportunities. This is due to the need to offset the adverse effects of inflation and low interest rates.

Preserve and increase

By investing in mutual fonds their capital is put to work in a more active manner than it is the case with company shares. During the core period of an active mutual fond it is not really possible to exit. The only way is to sell the titles to 2nd market buyers, where you will have to accept a substantial capital loss. For those who want to jump into mutual fonds that have already stated, this is a cheap entry point, nevertheless, there are quite some risks to bear in mind.

What if the investor exiting knows of an adverse situation that can lead to total loss of the invested capital?  Only the well-informed investor should jump boats. You need an understanding of the niche which the capital is being invested in.

Portfolio overview

In contrast to shares traded on the stock market, it is much more difficult to keep an overview of the activities of one’s portfolio. You need to know how much you paid in and which capital amounts are actually in the investment. You want to use IRR to understand the trends and your best case return of investment and real ROI rate. Since 2011 one of our clients is managing a €7m portfolio with a software we developed for German mutual fonds investors. The tool can report individual and portfolio performances with detailed numbers, history and also as an easy to understand graphical presentation. This allowed the client to even understand the performance of the previous 10 years of invested capital in a way that it outperformed the outdated excel sheet reports of the international audit firm he had hired to analyse his portfolio.

8 steps ahead of the game

Therefore mutual fonds are products ideal for the well-informed and educated investor that knows what he is investing in and can handle adverse situations by being 8 steps ahead of the game.