Editor’s note: This article was first published in December 2010; rules on selling investment products to retail clients in Spain and the EU have tightened since then, notably with MiFID II in 2018.
Investment funds tend to be the investment vehicle of people who have no idea about financial markets (someone well known said this, though I can’t remember who right now). The fact is that this product tends to be the banks’ favourite, and we won’t go into the reasons why.
Before you ask which investment fund is the most profitable, or even before you start looking at funds, first work out which group of bank customers you belong to. Ask yourself whether you’re just another customer to the bank or whether you’re a private banking client, because the return on the fund will depend on what kind of customer you are.
It’s sad to hear, and I don’t mind if the banks call me a liar, because they know as well as I do that they have encouraged people to invest in funds knowing in advance that those funds wouldn’t be profitable. After all, what is a customer who is going to invest €10,000 worth to a bank?
At the same time, they offer high-return investment funds to their private banking clients, the ones who are going to invest €300,000 or €1 million. That customer has to be looked after, and indeed the bank makes sure it does.
A bank works just like any other business. If we compare it with the Inditex Group or any other company, when they have stock that isn’t selling, the idea is to get rid of it at whatever price, with offers, discounts and so on.
With banks it’s more complex. The bank branch manager is just a salesperson who receives orders about what to “push” on customers, and in some cases earns a commission for it. Then you walk through the bank’s door looking for a return on your money (€5,000), which for you represents five years of savings, but for the bank you’re the ideal prey, and you’ve handed it to the manager on a plate.
You went in looking for fresh fruit and came out with rotten fruit. When you realise the mistake you’ve made, you go back to your branch manager, and once there he explains that that’s investing for you: “sometimes you win and sometimes you lose”, as if it were a lottery ticket.
My advice is very clear. Only use an investment fund if you’re a private banking client or if you find a manager with a well-earned reputation, who will charge you high fees that are reasonable for the profits he can bring you, and even then that person can get it wrong without meaning to. So, as the soundest advice of all: the best investment fund there can be is the one you build yourself, with a well-diversified investment portfolio.
And remember that a bank manager, as a rule, knows even less about investing than you do, so be careful whose hands you put your money in.
Remember this: the best investment funds aren’t advertised. They go straight to the people who have already been selected for them.
Further reading
- How to go broke investing in the stock market: stock market myths
- Common mistakes when investing
- Serious mistakes investors make
Featured image: Images Money, CC BY 2.0, via Flickr.
