As the Poles are becoming wealthier and their savings are growing, more and more people are looking for a safe method of depositing their money. Top investment funds are one of the most popular forms of investing which seems attractive because of solid legal regulations and transparency. Unfortunately, this transparency is often illusory.

What should you take into account when choosing investment funds

First of all, you should be aware of the risk level. Because of their very nature, funds may include investments with varying levels of loss risks. It is up to the investor how much risk they want to take.

You should avoid funds which provide unclear information about investment risk. Be particularly wary of funds that claim to be 100% safe while promising that they will allow you to multiply your assets. Such occasions almost never happen and every miraculous chance of profit will most likely prove to be an attempt of fraud in which all the fund participants will lose.

There are also funds established by people who know nothing about the markets in which they try to invest. What is worse, they often lack knowledge even on trading in investment funds. Such funds are based on erroneous analyses, and often also on an emotion-laden approach to assets that are strongly linked to geopolitics (for instance, a fund that envisages a collapse of the European Union that was established by an opponent of this institution). Assumptions based on emotions are almost always a wrong choice in investing, also in the case of funds.

So, how do you invest safely in funds?

The primary rule that you should follow when investing is learning about the sector in which you want to invest. In other words, you should not rely on what the fund creators are saying – they will only speak very highly of their offer. Even investment funds with the worst prognoses, which investors with any experience consider to be doomed to fail from the start, have been advertised as innovative, safe and certain to bring immense profit.

Also, you should not rely too much on profits earned by funds in the past. Indeed, in many cases, a fund that has gained 30% in value within one year to three years is a good investment for the future. However, a defining feature of a trend is that it reaches a peak at some point and becomes reversed; therefore, the period right before a peak is the worst possible time to buy any fund units.

Several examples of recommended investments in 2018

2017 was a very good year for foreign share funds. However, this was only valid for developing European or American companies from the technology or biotechnology sector. The record was established by Quercus Global Growth, a fairly new fund that is based on shares of various biotechnology companies from Europe. In general, the majority of Quercus subfunds corresponded very well to trend forecasts – a fund based on shares of Turkish companies (Quercus Turkey) was also very successful, as well as Quercus lev., a leveraged fund based on the WIG20 index pattern.

On the whole, however, it is plain to see that 2017 was a year dominated by funds containing shares of companies from the developed countries of Western Europe and from the United States. Practically every investment fund operating in this area generated a satisfying return on investment rate.

Several examples of recommended investments in 2018

As we already know which funds are worth investing in, we need to learn which ones are better avoided. Money market funds are most risky and most often incur losses. Regardless of the investment method, both for funds and individual investors, it is the foreign exchange market that incurs the largest percentage of losses – up to 85%.

2017 also brought about losses in funds which simply had incorrect forecasts. The most famous of them is “Eurogeddon”: a fund based on the assumption that the eurozone would fall apart. The fund was supposed to earn profits from the expected decline in the value of the European currency. After years of consistent dwindling of the Eurogeddon’s capital, the fund was finally dissolved in mid-2017. Another fund, based on the similarly risky assumption that the prices of shares of the largest companies quoted on the Warsaw Stock Exchange (according to the WIG20 index) would drop, also incurred losses, which is not surprising.

As regards less obvious failures, the last year was not favourable for the commodities market. Funds based on commodities were the ones that incurred largest losses in value. 2017 was also not a favourable year for investments in companies based in Africa. Out of all shares of foreign companies, the African companies were the ones that incurred record-high losses, in contrast to almost the entire rest of the world.

Investment funds are certainly an attractive form of investing capital. Their greatest advantages are high availability and possibility to choose a fund which fully corresponds to the investor’s predictions. Also, legal transparency is what attracts people who have never yet dealt with any investments. Certainly, funds may allow investors to earn solid profits but they also may generate huge losses. In this regard, this form of investment does not differ from any other forms. This is why it is good to know how to invest in funds safely and which rules to follow to avoid losing savings.