Mutual Funds and Other Options

I was an Investment Advisor, or in colloquial terms, a ‘stock broker’ back in the early ’90’s when mutual funds became more widely known.  GIC investors were flocking to this newly touted investment vehicle, sometimes erroneously thinking that last year’s stated  rates were guaranteed for next year’s returns.  Some people moved to mutual funds after they had a good year of returns to prove themselves only to be rewarded by flattened returns in 1994 or 1995, if I remember correctly.  These investors fled back to their GIC’s only to miss another wonderful gain the following year in mutual funds.  Volatility was certainly not something GIC investors were accustomed to experiencing.  When the financial markets had a downturn they flocked right back to their safe-GIC haven and didn’t look back out from under the covers for several years nor never, in some cases.

Much past the vogue now,  mutual funds have become more mainstream.  For the novice investor they provide an opportunity to diversify a portfolio with little capital investment.  Even a $5,000 portfolio can muster up the beginnings of diversification and a good investment plan to move a client’s wealth forward.  Mutual funds also provide a good starting point for new investors to learn about the equity markets and experience, first hand, what their level of risk tolerance might be as they move through different market cycles.

I’ve always advocated, however, that people who have unmasked a certain amount of wealth ($300,000+, consisting of all investable assets including non-registered accounts, RRSPs, RRIFs, RESPs, TFSA’s, LIRA’s, etc.) should look at other options.  Brokerage and other investment firms may offer fee-based, discretionary money management that provide access to more sophisticated money managers, such as pension and institutional money managers, rather than the retail money managers found in the retail mutual fund industry.  These investment solutions work a little differently too.  Once your Investment Policy is set, your Investment Advisor will ensure that you are properly diversified from an asset allocation and a geographical allocation prospective.  The Investment Policy is a binding agreement not to go outside the parameters of where you have both agreed your hard earned cash will be invested.  What’s different is that you will not be receiving the phone call from your Investment Advisor asking you if you want to invest in ABC Co. or XYZ Co.  The portfolio managers, who work in the background, will be buying and selling the underlying investments based on your agreement in your Investment Policy.

Not only do you receive access to pension fund and institutional money managers but, often, the cost of investing is much less on a percentage basis.  In the past, I’ve calculated as much as a $10,000/year savings (based on portfolio size) which, compounding over several years, can make a big difference to your retirement fund down the line.

However, some people don’t like the idea of discretionary money management, preferring to be more directly involved in the decision making process and managing their accounts on a security by security basis.  That’s OK too.  It’s important, however, to explore your options.  After all, it’s your future we are talking about.

*Please not that Financial Divorce Services does not manage assets, preferring to offer unbiased advise and information only.  Any opinions in this blog have been derived from over 30 years in the financial investment and financial planning industry.





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