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Are Mutual Funds Worth Owning

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There is a lot of controversy right now about the high costs of Mutual Funds and whether you should own them. Everyone who owns mutual funds pays a Management Expense Ratio (MER) whether you invest through your bank or have an independent financial advisor or planner. So you are paying for service even if you don’t see what you are paying or receive the service. What kind of service should you be getting in return? 

 

First what are mutual funds?

They are investments that:

  1. Are professionally managed, usually by a group of specialists.
  2. Hold a ‘basket’ of investments that combine stocks and/or bonds and/or cash.
  3. Give you diversity, liquidity, simplicity, and economies of scale.
  4. Come in a variety of risk levels from low to speculative.
  5. Increase/decrease in value depending on the investments they hold.
  6. Can be used for regular income as many pay distributions.
  7. Can be very tax efficient – letting you keep more of your money.
  8. Can be used to save for any medium- to long-term goal.

Next what should you get for what you pay?

  1. Pays for the professional management
  2. Pays for the administration of the fund, which includes all the paperwork i.e. statements, confirmations, tax receipts and more.
  3. Pays your advisor for their advice and other value added items like financial and retirement planning
  4. Pays the dealer your advisor works for, the dealer provides software, compliance officers, call centres for support and more to help your advisor.
  5. Sales tax – yes even this needs to be paid on mutual funds!

What should your advisor be doing for you?

  1. Guide you to establish and prioritize your goals
  2. Help you realize your risk level and investment objectives
  3. Work with you to develop appropriate strategies to meet your goals
  4. Choose funds that are worth the money, only about 20% are
  5. Build a financial plan that will allow you to meet your goals.
  6. Review your plan and goals at least annually to make sure you are on track.
  7. Education, retirement, retirement income, estate, and insurance, planning.
  8. Debt management and wise spending

Make sure you get what you pay for!

 

There are upwards of 16,000 funds available, it is your advisors job to help you sort through and find what is best for you. But as you can see that is only the start of what you should be getting from your advisor. A good advisor will be your go to person for anything that has to do with your finances and should be able to provide answers on most issues or direct you to the correct professional. Every advisor in Canada gets paid to do a job, make sure yours does and if they do they will be worth every dollar. If yours does not find one that does, it will be worth the effort it takes to make the change.