Mutual Fund – “An investment program funded by shareholders that trades in diversified holdings and is professionally managed”
For many, mutual funds are a fantastic option. Most people can’t make better decisions on investments then fund managers. This is literally their job, naturally they’re going to have more insight then the average Joe. The other benefit many don’t know is that you can own a mutual fund within your RRSP & TFSA. (Canadian Terminology)
Now, with that being said. Keep in mind there is another option out there too and it’s known as an Exchange Traded Fund or ETF. They track a particular index such as the Toronto Stock Exchange. If the TSX has a great day, so does your ETF. You can purchase ETF’s for nearly any industry as well.
Keep in mind there is no RIGHT or WRONG answer here. Mutual funds can offer amazing returns and are incredibly convenient. Be aware of your MER % and Mangement fee.
Why would you consider an ETF?
- Lower Fees (Canada has some of the highest mutual fund fees in the world)
- Performance (On average an ETF will out perform mutual funds)
- Industry exposure (If you are an active investor with a particular industry that you want to invest in however you feel investing in 1 or 2 stocks would be too risky you may diversify the risk with an ETF covering that industry.)
- Traded on the Market (Thus making it easy to liquidate your assets)
For those visual learners here’s a great video.
I hope this post can start your own investigation. Thanks,