If you’re tempted to invest in funds, there are a few things you should know. While there are some factors that increase the chances of success, there are also some risks that you should be aware of. When choosing a fund, it’s essential to choose wisely and diversify your assets. You can’t expect to have a higher rate of return, and you also have to be patient. But once you’ve made the right choice, you can benefit from the high return potential.
Factors have cyclical trends and can be hard to time. You can try to time the factors that you believe will move up and down. Or you can sidestep the laggards while overweighting winners. Whether you’re trying to time the market, investing in factor funds is risky, and you should understand them completely before you invest. Keep in mind that factor returns are cyclical, and your fund might experience periods of sharp underperformance.
Another common mistake investors make is to base their investment decisions solely on recent performance. However, the longer term performance of a fund is more important. Experts recommend looking at its long-term performance as well as its recent performance to make an informed decision. This will help you avoid pitfalls and make the most informed investment decision. If you’re not sure what you should do, read Morningstar’s recommendations for funds.