Mutual Funds 101

 

Mutual funds are the all-in-one package of the investment world and can hold stocks, bonds, money market instruments, and cash all inside one fund. As an investor, you can purchase units (or shares) of a mutual fund and gain exposure to the underlying investments all in one go, with the number of units you own determining your piece of the pie. The proverbial pie will increase or decrease in size based on the net asset value of the underlying investments held in the fund where the wins and losses are distributed between all the unitholders and not just you.

 

Getting Started With Mutual Funds

 

The real win here, is that you can pool your money with other investors to purchase via the mutual fund larger amounts of securities than you might on your own. Mutual Funds are considered open-ended meaning that new units can be created by the fund manager as new investors come along. When a new investor comes in, both the number of assets and units increases and when an investor leaves, the number of assets and units decreases. It’s important to know the fluctuation of assets and units is not likely to have an immediate effect on the worth of your units which is determined by the Net Asset Value. However, where the underlying assets are sold for cash to pay the redeeming investor their share, there may be realized capital gains with taxes being distributed to unitholders accordingly.

 

Looking for a safe place to put your money? There’s no better place to build wealth WITHOUT risk than in an Infinite Banking policy. Learn more here.

 

Advantages of Mutual Funds

 

Low Cost

Mutual funds offer a lower cost for investors comparatively to building an investment portfolio on your own but will likely be higher than an ETF or Index Fund that is passively managed. Every mutual fund will have their own management expense ratio or MER fee (management fees plus operating expenses) listed under the fund facts. Keep in mind regarding fees the idea is you get what you pay for.

 

Professional Management

When investing in a mutual fund, the responsibility for deciding which investments to hold rests on the fund managers shoulders and is off yours. Different managers may have different investment objectives, philosophies, and strategies (for example, some may hold an active approach, and some passive). All you need to do is decide which fund and manager you want to invest with.

 

Diversification

The different types of mutual funds will include equity, fixed income, balanced, specialty, money market, and index funds, and can be domestic or foreign. The return you get when investing in a mutual fund will be distributed as a dividend, interest payment, or capital gain and taxed accordingly (that is, unless the mutual fund is held inside a registered plan like a RRSP, RRIF, TFSA, or RESP, in which case the tax will be deferred until you withdraw your funds). Normally speaking, these distributions can be paid out monthly, quarterly, or semi-annually with most distributions automatically being reinvested back in the fund.

 

Investor Protection

Investors will receive some protection in the event a mutual fund does fail. An eligible investor can receive up to $1,000,000 from the Mutual Fund Dealers Associations Investor Protection Corporation where their firm is a member or the Canadian Investor Protection Fund where their firm is a member if this were to ever happen.

 

A Note From The Author

 

While I’m not able to provide investment advice of any kind, I do believe it’s important for you as the reader to understand the basics about the different investments available in Canada today. Part of this reason is because as a financial educator I believe having this information in one easy to access place is key to building financial intelligence. The other reason is because as a promotor of Infinite Banking (the idea of using Dividend-Paying or Participating, Whole Life Insurance for cash flow purposes), it makes sense to educate my clients (and those interested in implementing this strategy into their financial plan), on the underlying investments of the Participating Account as well as the underlying investments of other financial vehicles not associated with Infinite Banking. Please note this information is intended for educational purposes only and not as financial advice. Thanks for understanding!

 

Key Features Desired By Most Canadians


Safety and Security

  • Predictable Results
  • No Capital Loss/Safe Harbor
  • Guaranteed Cash Accumulation

 

Growth

  • No Capital Loss/Safe Harbor
  • Guaranteed Cash Accumulation

 

Access To Money Without Penalty

  • Liquidity, Use and Control
  • Guaranteed Loan Option
  • Collateral Opportunity
  • Free of government involvement

 

Tax-Favoured

  • Tax Deferred Growth
  • Tax Free Distribution
  • Tax Free Death Benefit
  • Tax Deductible Contribution

 

All the best in your financial journey,

 

Ashley Lalonde

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