How to choose an investment fund based on the benchmark

I have previously discussed investment fund’s benchmarks however you need to understand how to use benchmarks to choose the right investment fund for you.

Here is a step by step:

1. Define your goal: You need to define if you want to protect your money from inflation, to secure your principal, to seek capital growth, etc
2. Define the risk you are willing to take: Do you accept to risk having negative return on investment? Do you accept risk of losing everything you invested?
3. Define the amount to invest: you need to define what you will invest upfront and how much you invest monthly (if any).
4. Define the estimated time you will keep the money invested.
5. Compare points 1, 2, 3 and 4 with the benchmark of the funds you have available: If you seek to protect your money from inflation, you want to have a benchmark that has strong relation to inflation, for example. You don’t want to go into a stock’s fund if you are not willing to accept negative return on investment or to have longer investment timeframes (2-3 years)
   

When you do that, you will have ruled out almost all funds, leaving you with few options. Simply compare the past performance and you will most likely know in what fund to invest.