How Small Funds Outperform Large Funds

Often investors get caught by marketing like anyone else and become absolutely in love with a brand. Case in point is that they'll take lower returns from a large, name brand fund over the higher returns of a lesser known, small fund. To be fair, the large name brand funds may have earned that brand due to solid past performance.

However, sometimes a brand name is only a name and as the saying goes, you are only as good as your last quarter. With all the volatility in the market affected by every jitter around the world, a short-term outlook is becoming as important as a long-term one. Small funds have the benefit of being both agile and flexible to move with the volatile market, and capitalize on traditional and alternative investment strategies before the larger competition. Another extremely important factor to consider when looking at the size of funds is its relative inflow compared to its outflow. This is very important when looking at hedge funds and other funds that have an alternative investment strategy that is not publically traded or correlated to the global financial markets. In simple terms, a large fund that has a huge amount of assets that need to be invested have an issue of where to put all of the money because they are not dealing in a market with liquidity. It is because of this that guidelines are stretched and additional risk is taken all because there are investor dollars expecting a return.

The ability to pick and choose the investments get caught by the demand side, and the managers end up with a few hopes and dreams in the portfolio, instead of all solid choices. All of the prior points are important, but I think the greatest benefit of a small fund is the accessibility to the managers. I will be coming out with a full article on the benefits of small funds, but I would like to leave you with this. It's a fact of life that most big things started out small. That goes for everything from structures, governments, markets, companies, and the funds that invest in all of them. The real returns on all of these were not garnered at the end, but more so at the beginning when the ideas were fresh and the motivations clear. Ask yourself if you are sacrificing your investment dollars for an old brand, because running with the crowd can sometimes get you trampled.

The Lazy Man’s Way to Invest Safely

There’s no doubt about it that investing in stocks and shares takes quite a bit of mental effort, especially if you don’t know much about it to start with. Then when you’ve learned enough to start investing, there is the stress involved in watching the stock market plummet in time of economic downturns. While we know investing is a good thing, we still don’t want to lose our money or be stressed out. Having lots of money is no good if you die of a heart attack due to the stress of investing.

So what’s to be done? If you want to invest safely without the stress, or if you are feeling simply too lazy to go to all the trouble of learning about shares, there is another way. Keep your money in a term deposit or cash management account. How easy is that? Sure, you may not make the same interest that other kinds of investment bring, but it’s still quite reasonable. And all with no stress.

The upsurge of credit unions with their high interest rate offers has forced banks to finally pull up their socks and offer better terms of interest than has traditionally been the case. The Internet has helped out too, by providing opportunities for account holders to do a lot of their banking online. This means that banks don’t need to provide the same level of staffing that was once required, so they can save money on wages.

In fact, the electronic accounts of some banks offer really good interest rates like 7% or 8%. Some banks are entirely electronic by nature with no bricks and mortar for the customer to walk into. These are the ones with the best rates of interest.

A cash management account is a way of having access to your money for daily banking requirements and also taking advantage of better interest rates. They often offer tiered rates of interest so that the higher the balance the better the interest.

Term deposits may lock your funds away for the length of the term but this can be a good thing for those who are prone to spend on impulse. It means that several days are necessary before their money is available. And the interest rate is guaranteed to remain the same for the length of the term. Both these options are excellent choices for the lazy man who wants avail himself of those investment dollars.