It’s recommended that you review your unit trust investments annually to see if they are on track to achieving your financial goals – but what if they’re not? It’s important not to let emotions take over, and possibly cause you to make impulsive decisions that may be detrimental to your investment. So, what should you do?
Before investing in a unit trust, it’s best to research the different options carefully so that you have a comprehensive understanding of them. Perhaps, start by finding an investment manager who has a proven track record and whose ethics resonate with you. Once you have chosen your manager, it’s a good idea to check that your investment goal as well as time horizon match the unit trust.
Periods of uncertainty are typically expected when investing (particularly short-term investments). During these times, it’s suggested that you keep a level head and don’t switch, i.e. to sell out of an underperforming unit trust and move the investment to a unit trust that is performing better at that specific time. By doing this, it’s possible that you can end up locking in losses.
Changes to your investment should only be made if your financial goals or personal circumstances change, e.g., you get married, have a child or are saving for education – not because of short-term market fluctuations.
How to select a unit trust or review your decision
Reputable investment managers should publish minimum disclosure documents for each fund that they manage. These are usually called factsheets that provide you with an overview of the unit trusts’ features, its objectives and approach to achieving them. It should also show you up-to-date performance, risk and fees.
It may be beneficial to speak to an independent financial adviser (IFA) who can guide you through the factsheets, explain any concepts and/or answer questions you may have. After this, you should have an ample understanding of how the unit trust works.
Here are key things to look out for on the factsheet.
- Time horizon
The factsheet should disclose the ideal investment period, or it may tell you if the unit trust is suitable for long- or short-term investment. It’s important to check that the number of years you intend to invest aligns with the timeframe.
- Maximum drawdown
It’s worth deciding if you’re comfortable with the potential market fluctuations that may occur during your investment time horizon. The highest and lowest annual returns shown on the factsheet should typically give you a good idea of the range of returns that can be expected while invested in the unit trust.
- Highest and lowest annual returns
The maximum drawdown (how much an investment is down from its peak before it recovers back to its peak) of the unit trust should help you assess the likelihood of money that you may lose. You may need to decide whether you can afford to take the risk.
Should you find a mismatch between your expectations and the outlines shown on the factsheet, you may have chosen the wrong unit trust. If this is the case, re-assess all of your options with the help of an IFA.