Mutual funds are a very popular investment. For many people they are the core investments in their portfolios. But, a lot of people are too complacent about their holdings – they don’t know exactly what they have and trust in their financial advisors too much so they end up in the “financial product of the month” that offers the advisor the best commission.
Mutual Fund Investing
Some people are happy when they see an increase, and switch to some other mutual fund company when they see a loss (or cash them in altogether and really take a loss).
Some people worry about high management fees and stick with lower cost index funds or switch to ETFs. There’s nothing wrong with these products as long as the reason you hold them is not entirely because you save money on fees. Some higher MER growth funds can outperform the index giving an overall higher return. ETFs don’t lend themselves to a regular purchase plan because of commissions when you buy them (like a stock).
In my opinion, mutual funds can be a very good investment for people in certain circumstances for these reasons:
- Easily available through banks and fund companies such as Investors Group. Generally no fee to set up an account and advisors to assist in building a portfolio.
- Low cost purchase plans – some as low as $25 – are a good way for younger and/or lower income people to start building up their investments and get them in the savings habit with fixed regular contributions that also have the benefit of dollar cost averaging.
- An easy way to diversify a smaller portfolio by holding different types of asset classes, management styles and geographic locations.
- A good way to take advantage of foreign investments that would be difficult to purchase otherwise.
- After purchasing the initial funds there is no direct involvement in the managing of the securities (done by a professional fund manager) for those who have no experience or interest in making these decisions.
Also, in my opinion, when a mutual fund portfolio exceeds around, say $50,000, it’s time to purchase a stock portfolio. After the initial purchase fees you will have no other management fees.
You can choose the top 10 stocks of an index or dividend ETF for a good start if you don’t know what to buy. A buy-and-hold strategy avoids having to make decisions of when to sell.
You benefit from both growth and income if you hold dividend stocks for the long term. Overall, I think you would end up making more money.
I like to read about different investment styles that other people choose. What is your investment strategy and why did you choose it? What are your thoughts on an ETF vs mutual fund?
