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INVESTMENTS: Mutual Funds
Investment Choices
Fixed Income Investments
| Investment Type |
Earning Mechanism |
Short-Term Risk |
Income Potential |
Long-Term Growth Potential |
| Bonds |
Interest and capital gains |
low to Moderate |
low to Moderate |
low |
| Savings Accounts |
Interest |
None |
Low |
Low |
| Canada Savings Bonds |
Interest |
None |
low |
Low |
| GICs |
Interest |
None |
low |
Low |
Mutual Funds
| Invest-ment Type |
Investment Focus |
Earning Mechanism |
Short-Term Risk |
Income Potential |
Long-Term Growth Potential |
| Money Market Funds |
Commercial paper, treasury, bills, and short-term bonds |
Interest |
Low |
low |
Low |
| Fixed-Income Funds |
Mortgage-backed securities, corporate, government bonds |
Interest and capital gains and return of capital |
low to moderate |
low to Moderate |
low |
| Balanced Funds |
Stocks and bonds |
Interest, dividends, and capital gains |
Moderate to high |
Moderate to high |
Moderate to high |
| Equity Funds |
Stocks |
Dividends and capital gains |
Moderate to high |
Low to High |
High |
Costs
Avoiding load funds can be costly
Some people avoid load funds because they don't want to pay a sales commission. This can be a mistake for three reasons:
- A load fund with a good return can be better than a mediocre no-load fund; so focusing only on the commission to be paid distorts the real value of a fund.
- No-load funds usually come with no advice - which means you are on your own. And most people don't have the time or expertise to do it themselves. A financial advisor will work with you to develop a personal plan and will also help you adjust it when your priorities change.
- There's no such thing as a free lunch: People who sell funds must be paid and someone must pay for the offices and all the other costs of running a business.
Commissions and Selling Costs
Mutual funds are available through independent financial advisors, stockbrokers, life insurance agents, banks, and trust companies. The people selling you a mutual fund are paid a salary and/or sales commission.
In some instances, you pay for these by negotiating an upfront sales commission. Or the fund company pays the commission and you may pay a deferred sales charge when you sell your fund units. These are known as "load funds." In other instances, you do not pay a sales commission or deferred sales charge. These funds are known as "no-load funds."
Management and Administration Costs
The fund manager charges a fee for the day-to-day management of the investment portfolio. This management fee is charged directly to the fund. The fund pays brokerage fees and commissions on portfolio transactions, as well as taxes directly attributable to the fund. The fund may also pay daily operating expenses (i.e. legal, auditing, and administrative expenses.) The management fee and operating expenses together, calculated as a percentage of the fund's average net assets, are the fund's management expense ratio, or MER.
Although you don't pay the management fee and operating expenses directly, the size of the MER will affect your fund's performance because the greater the management costs, the lower the return on your investment. Like commissions, MERs should be measured against a fund's performance.
Do you require an expert to help you achieve your financial goals or a second opinion to evaluate your mutual fund portfolio?
Complete our on-line form to receive a free information package or contact Horizon Planning Group any time at 1.877.683.9322. If you prefer you may always send us your questions via email to investments@bestplans.ca and we'll reply back with expert advice within 24 hours.
Seeking
Advice
Asset management can consume a considerable amount of time and
energy. Today's complex financial marketplace and changing tax laws
can make it even more difficult to keep up with the changes and how
they affect you.
Because of these implications, it is highly advisable to seek a
qualified professional to help you understand all the complexities
involved.
Looking for the Best Investment Funds Advisor to help you achieve
your financial independence? We'll find the Best for you...
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