How to choose the most suitable investment plan?

One of your major tasks is to choose a fund manager and investment plan that would be the most suitable for your situation and goals.

There is a competition among the fund managers, and they are interested in offering you the most beneficial services at the best prices. In this turn, you have the choice to which manager to entrust your pension capital.

In the financial markets, there are a lot of different money investment opportunities, from safe investment in government treasury bills and bonds, to riskier, but potentially more profitable investments in companies` shares.

Fund manager can offer several plans with different level of profit and risk that depends in what securities and deposits your pension capital will be invested. Therefore, before you choose an investment plan, you need to understand the advantages of each type of investment, as well as you have to know how much you are willing to risk.

Step 1 – choose the level of risk!

To choose the most suitable investment plan for you, you have to understand to wjat extent you are willing to risk and what your priorities for investment are – to invest in stable government securities or in companies’ shares with potentially higher returns.

Although there are many and different investment plans with different degree of risk, they can be divided into 3 types:

Conservatives the money is invested in stable, safe securities, which are usually government treasury bills and bonds or companies` promissory notes or bonds. These investment plans are with a small profitability, but are not as volatile as investments in shares. Due to the low volatility conservative investment plans they are recommended for those, who have less than 10 years till retirement age.

Balanced the money is invested in financial capital markets so that gaining of profit and the associated uncertainty (risk) would be balanced with the preservation of pension funds and security of investments. Balanced plans may invest up to 25% in companies` shares, thereby increasing the expected long-term returns of the investment plan. Balanced plan is recommended for those for those, who have at least 10 years till retirement age.

Active – the money is invested in shares of various companies, because shares have traditionally the highest returns in the long-term. Active plans can invest up to 50% in shares from their funds. However, it is good to remember that investments in shares are also associated with higher risk, it means fluctuations. Active plans are recommended for those, who have at least 10 years till retirement age.

It is important to remember the connection: the higher the profit is expected, the greater are the fluctuations of the value of investments.

Choose your 2nd pension pillar`s (state funded pension schemes) investment plan responsibly!

When choosing the appropriate investment plan, the person`s expected participation time in the 2nd pension pillar (state funded pension scheme) until his/her retirement pension is important. The longer is the time until the retirement pension, the bigger risk the person is able to take and the other way – approaching the pension age, the ability to take the risk is descreasing.

Therefore for people, who have 10 or fewer years until retirement age, it is advisable to switch from the active to the conservative investment plans. Otherwise the participants of the active plan a short time before their retirement may have to experience very sharp, negative fluctuations in the accumulated capital, which will significantly affect the expected old age pension amount.

Step 2 – select a fund manager!

Choosing an investment or retirement plan, an important role plays the reputation of a fund manager. As the fund manager`s responsibility is to manage your money funds, it is important that you could have confidence in the financial institution and you would not be deceived.

How to determine it? What to put attention to?

Experience – first of all it is important to know how much experience your preferred fund manager has in the management of funds or investment funds. To become a fund manager of the funded pension scheme, the investment management company has to receive a license from the Financial and Capital Market Commission. It is also valuable to know whether your chosen fund manager has received warnings about serious violations in their business activites.

Management costs although the legislation regulates the maximum amount of fund management charges, however, each fund manager determines its own, different fees for services and transactions, including payment to third parties: custodian bank, certified auditors, auditors, brokers.

Transparency – pay attention to how well investment principles and investment policy are observed, and whether you receive clear information about the fund manager`s investment structure and volume.

Convenience also pay attention to what options you have to follow the fund manager`s investments, to keep in touch with your fund manager, and how can you get a report on the investment management results.

It is also important to know the custodian bank of your chosen fund manager. The custodian bank is a bank with which the fund manager has a contract on holding of funds and it performs the supervision of your fund managers’ activities on a daily basis. In the custodian bank all investment plan accounts are open (billing accounts and securities accounts), where both the securities bought by the investment plan`s funds and the non-invested money are held. The custodian bank also examines the fund manager`s prepared orders on funds` investment compliance with the investment plan. Also the custodian bank is obliged to not execute any custodian order which is inconsistent with the investment plan. Otherwise, the custodian bank shall be responsible for any losses that may occur to you.

Step 3 – choose the investment plan!

Once you have understood what level of risk is acceptable to you, and have chosen, according to your opinion the most reliable and safest fund manager, it remains to choose the investment plan that would be the most appropriate to your interests.

What kind of investment plan to choose, it is only up to you! If your chosen investment plan will not satisfy you, you will be able to change it.