# Question on mutual funds



## buick1957 (Jan 13, 2010)

I have never invested in mutual funds because I have always been scared of losing my money but I do have progressive GIC with BMO that are connected to the market but as far as mutual funds I'm thinking about it in RRSP but just a little neverous any advice from anyone?


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## slacker (Mar 8, 2010)

buick1957 said:


> I have never invested in mutual funds because I have always been scared of losing my money but I do have progressive GIC with BMO that are connected to the market but as far as mutual funds I'm thinking about it in RRSP but just a little neverous any advice from anyone?


Yes, you are right to fear mutual funds. Canadian mutual funds charge one of the highest rates in the world. If you have $100,000 in mutual funds, the average Canadian mutual fund company will take over $2000 from your account every year (regardless of whether they made you any money or not).

I'd recommend doing some research and learning before jumping into mutual funds (if at all).


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## buick1957 (Jan 13, 2010)

slacker said:


> Yes, you are right to fear mutual funds. Canadian mutual funds charge one of the highest rates in the world. If you have $100,000 in mutual funds, the average Canadian mutual fund company will take over $2000 from your account every year (regardless of whether they made you any money or not).
> 
> I'd recommend doing some research and learning before jumping into mutual funds (if at all).


what do you think is best?


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## slacker (Mar 8, 2010)

Start by doing some quick reading from the fine bloggers on this forum:

http://www.canadiancapitalist.com/
http://canadiancouchpotato.com/

Then maybe some books:

http://www.amazon.ca/Four-Pillars-I...=sr_1_1?ie=UTF8&s=books&qid=1273599922&sr=8-1

http://www.amazon.ca/Intelligent-As...io-Maximize/dp/0071362363/ref=pd_bxgy_b_img_c

A lot of people on this forum will recommend a "couch potato strategy", so this is something you get start with:

http://canadiancouchpotato.com/model-portfolios/

Let us know if you have questions afterwards.


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## HaroldCrump (Jun 10, 2009)

buick1957 said:


> I have never invested in mutual funds because I have always been scared of losing my money but I do have progressive GIC with BMO that are connected to the market but as far as mutual funds I'm thinking about it in RRSP but just a little neverous any advice from anyone?


Those market linked GICs are not the best way to get exposure to the equity markets and preserve your capital at the same time.
The base, guaranteed interest rates on those GICs are much lower than a regular GIC of the same term.
On the equity side, you only get a certain % (usually around 60%) of the performance of a benchmark determined by the bank (BMO, in your case).
So the bank controls the benchmark they choose to evaluate the performance against, and they control what % of performance you participate in.
Often, the benchmark is not one of the standard ones (like the TSX S&P index) but a custom index created by the bank (BMO Canadian Equity index, for example), which may or may not mirror the broader TSX index.

If you wanna participate in equity as well as preserve capital, you can do so by splitting your capital (60/40 or whatever risk level you are comfortable with) and investing one part in a fixed term GIC and the other part in a true index fund/ETF like the XIC.
The GIC will preserve your capital and the XIC will give you exposure to the equity markets 100% (and dividends to boot).


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## mogul777 (Jun 2, 2009)

Those GICs are garbage. Most mutual funds are as well, but you'd likely fair better with them than with individual stocks. ETFs would be the other option if you have enough cash to warrant the trading fees.


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## Soils4Peace (Mar 14, 2010)

mogul777 said:


> Most mutual funds are as well, but you'd likely fair better with them than with individual stocks. ETFs would be the other option if you have enough cash to warrant the trading fees.


Or if your portfolio is too small to warrant trading fees you can invest in the TD e-series mutual funds. There are no fees to buy or sell if you hold for at least three months. And the management expense ratios are low, ranging from 0.3% to 0.5%, which is low for a mutual fund, and similar to etfs. If after three months or more you decide that stock funds are not for you, you can easily redeem these units.


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## vickylee (May 12, 2010)

I want to invest but I have no idea about this!!!!


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## OptsyEagle (Nov 29, 2009)

If you are already worried about losing your money and you haven't even invested it yet, how do you think you are going to react when you actually do? You might find that if you are seriously averse to drops in value (since when it happens it is because no real good reason for them to go back up exists) you might want to stick with plain old guaranteed bank deposits. All mutual funds will have declines in value, fairly regularly. If a person's outlook means that they will either sell them, re-structure them or even lose sleep at these times, they are guaranteed to lose money on them. 

I agree market participating GICs are not a good solution. Use the regular GICs and you will almost always end up making more money.


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## Oldroe (Sep 18, 2009)

The last time I looked there was about 600 mutual funds in Canada and about 20% are worth owning. It's a nightmare finding them.

You will be told ETF 900 available lot's with hidden charges and back door garbage . It's a nightmare.

Stocks rock solid div. paying stock not so hard to find. Hard to buy economically. Drips are a pain in the wohoo but cheap, discount brokers you need volume.


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## buick1957 (Jan 13, 2010)

OptsyEagle said:


> If you are already worried about losing your money and you haven't even invested it yet, how do you think you are going to react when you actually do? You might find that if you are seriously averse to drops in value (since when it happens it is because no real good reason for them to go back up exists) you might want to stick with plain old guaranteed bank deposits. All mutual funds will have declines in value, fairly regularly. If a person's outlook means that they will either sell them, re-structure them or even lose sleep at these times, they are guaranteed to lose money on them.
> 
> I agree market participating GICs are not a good solution. Use the regular GICs and you will almost always end up making more money.


you mean at 1 per cent or 1 and a half percent? why wouldn,t you get progressive GICS and make 5 or 10 percent a year or have the potential to


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## Four Pillars (Apr 5, 2009)

buick1957 said:


> you mean at 1 per cent or 1 and a half percent? why wouldn,t you get progressive GICS and make 5 or 10 percent a year or have the potential to


Because the fees on the equity portion are too high which limits your upside.

You are better off building your own linked-note portfolio.

Ie if you have $10k to invest. Put $8840 into a 2.5% 5 year GIC (I'm guessing at the rate). This will mature in 5 years with a value of $10k, which guarantees you won't lose any of your principal. Put the remainder ($1160) into some type of equity investment (mutual fund, etf).

If the equity investment goes to zero you get your $10,000 back.
If the equity return is zero then you will get a 2.2% return over all which is a bit lower than the guaranteed rate.
If the equity return is 10% then you will get a 3.5% overall return.


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## the-royal-mail (Dec 11, 2009)

Great thread and responses from all. Such a diversity of opinions and viewpoints. What a great bunch of posters in this forum. Thanks to all.


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## Dr_V (Oct 27, 2009)

buick1957 said:


> I have never invested in mutual funds because I have always been scared of losing my money


Out of curiosity, have you ever considered that, by investing in GICs, you've potentially been losing money once you factor in the cost of taxes & inflation?

(It's interesting because I know several people -- usually older folks who've worked hard their whole lives -- who've told me that they don't invest in the stock market for fear of losing money; but there is a study which suggests that by holding GICs for the long haul, they've actually come out _behind_ once taxes & inflation get factored-in.)


K.


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## Dr_V (Oct 27, 2009)

Oldroe said:


> Stocks rock solid div. paying stock not so hard to find. Hard to buy economically.


Perhaps you could clarify; why are dividend-paying stocks "hard to buy economically"?

(My thinking: a $29 transaction fee on, say, a $5000 purchase amounts to 0.58% overhead, which is pretty reasonable. And it only gets lower the more you buy.)


K.


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## Oldroe (Sep 18, 2009)

My thinking is Buick57 needs to look at fees and the smaller the amounts the more he/she should look.


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## buick1957 (Jan 13, 2010)

Dr_V said:


> Out of curiosity, have you ever considered that, by investing in GICs, you've potentially been losing money once you factor in the cost of taxes & inflation?
> 
> (It's interesting because I know several people -- usually older folks who've worked hard their whole lives -- who've told me that they don't invest in the stock market for fear of losing money; but there is a study which suggests that by holding GICs for the long haul, they've actually come out _behind_ once taxes & inflation get factored-in.)
> 
> ...


not just you saying it but I just can,t see how progressive GICS can be crap when your principle is protected and it gives you a chance to make some money from the market or a percent way better than regular GICS

I just required about mutual funds just to have a change and a variety of investments but all my RRSP is Progressive GIC because my principle is protected but mutual funds aren,t!


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## MoneyGal (Apr 24, 2009)

Dr. V: You may also be interested to read the results of another experiment by Milevsky (encapsulated in Chapter 8 of this book...and summarized here) which suggests that the equity risk premium has been oversold. At June 2009 (when the book was being published) US stocks (proxied by the SP500) had underperformed T-bills for the last 5, 10, 15, 20 and 25 years. 

Not an argument against equity investing; just a suggestion that the implication that equities put investors in a better place over the long run than T-Bills isn't watertight.


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## mogul777 (Jun 2, 2009)

buick1957 said:


> not just you saying it but I just can,t see how progressive GICS can be crap when your principle is protected and it gives you a chance to make some money from the market or a percent way better than regular GICS
> 
> I just required about mutual funds just to have a change and a variety of investments but all my RRSP is Progressive GIC because my principle is protected but mutual funds aren,t!


Simple. You make more from buying the two separately... while the basterds make less.


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## HaroldCrump (Jun 10, 2009)

buick1957 said:


> not just you saying it but I just can,t see how progressive GICS can be crap when your principle is protected and it gives you a chance to make some money from the market or a percent way better than regular GICS
> 
> I just required about mutual funds just to have a change and a variety of investments but all my RRSP is Progressive GIC because my principle is protected but mutual funds aren,t!


Buick1957, see my post above on the market link GIC disadvantages.
Also, market linked GICs and progressive rate GICs are entirely different animals - I believe you may be confusing the two.


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## Robillard (Apr 11, 2009)

buick1957 said:


> I have never invested in mutual funds because I have always been scared of losing my money but I do have progressive GIC with BMO that are connected to the market but as far as mutual funds I'm thinking about it in RRSP but just a little neverous any advice from anyone?


It's hard to make money if you are unwilling to risk some or all of it. Even by investing in index-linked or equity-linked GICs, you are taking the risk of earning no return on those investments when you could have earned a practically risk-free return investing in a vanilla GIC. What is it about your situation that makes you unwilling to risk principal in order to earn higher returns? Do you have a long time horizon before retirement? If you do, you should be willing to take some reasonable risks with your investments.


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## buick1957 (Jan 13, 2010)

Robillard said:


> It's hard to make money if you are unwilling to risk some or all of it. Even by investing in index-linked or equity-linked GICs, you are taking the risk of earning no return on those investments when you could have earned a practically risk-free return investing in a vanilla GIC. What is it about your situation that makes you unwilling to risk principal in order to earn higher returns? Do you have a long time horizon before retirement? If you do, you should be willing to take some reasonable risks with your investments.


I have 12 years before I'm 65 but I will probably have to work after that because I have no pension or house

when you say mutual funds are up and down how much does it usually go down on a medium risk


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## HaroldCrump (Jun 10, 2009)

buick1957 said:


> when you say mutual funds are up and down how much does it usually go down on a medium risk


These days - a lot.
Medium, high and low risks are subjective definitions and each asset allocation type fund may have its own mix.
It is actually the specific components within the portfolio that will determine its susceptibility to free market volatality.
12 years may or may not be a lot of time.
Some tech stocks that fell during the 2000 crash haven't yet recovered their peak values, and some that did have fallen again since 2008.
If we enter a long period of stagflation due to massive amounts of public debt across the globe, your "medium" risk mutual funds could be stagnating for 12 years or more.
Once you factor in the MER fees, you may not be left with much.


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## buick1957 (Jan 13, 2010)

I guess my GIC investments really aren,t that bad heard on the news people are pulling out of there mutual funds and stocks because of the shape of the market


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## buick1957 (Jan 13, 2010)

HaroldCrump said:


> Buick1957, see my post above on the market link GIC disadvantages.
> Also, market linked GICs and progressive rate GICs are entirely different animals - I believe you may be confusing the two.


***BMO Progressive GICsTM include BMO Market Index GICs, BMO Dividend Fund Linked GIC, BMO Return Enhancing GIC, BMO Top Performing Portfolio GIC, BMO Callable Equity Linked GIC, BMO Select GIC, BMO Income Enriched GIC and BMO Growth GIC.


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## buick1957 (Jan 13, 2010)

I have a Progressive GIC from BMO and 2 years I bought a Select Progressive GIC and by the way its up 35 per cent and its a 3 year term and I still have 1 year to go for you Progrssive GIC doubters!


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## plen (Nov 18, 2010)

buick1957 said:


> I have a Progressive GIC from BMO and 2 years I bought a Select Progressive GIC and by the way its up 35 per cent and its a 3 year term and I still have 1 year to go for you Progrssive GIC doubters!


Which Select Progressive GIC Series is this?

What is the minimum return guaranteed?
Don't they also limit your maximum return? I see this "Maximum Rate of Return for the Term: 12.00%"

If you had have invested in a TD Canadian Index - e-Series around two years ago it would be up somewhere between 50-70% 

Investing in a lot of things around two years ago as long as it was after Oct 08 will have given a lot of great returns right now.


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## warp (Sep 4, 2010)

Read this.....its a start, posting by another memebr on here here earlier.

http://www.theglobeandmail.com/glob...int-for-finding-monthly-yield/article1797376/

much better thyan mutual funds, or those gic's...but be prepared for some volitility.

If you need the money short term for something serious, like a house purchase of education fees, etc....perhaps you should not be stocks at all,


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## buick1957 (Jan 13, 2010)

plen said:


> Which Select Progressive GIC Series is this?
> 
> What is the minimum return guaranteed?
> Don't they also limit your maximum return? I see this "Maximum Rate of Return for the Term: 12.00%"
> ...


yes most Progressive GIC now have a cap but this one was bought in Oct.8/08 with no cap it was a promotion!


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## plen (Nov 18, 2010)

buick1957 said:


> yes most Progressive GIC now have a cap but this one was bought in Oct.8/08 with no cap it was a promotion!


Really, no cap?

I find it extremely coincidental that you tell me there was no cap due to a promotion and you're lauding 35% returns. When the product brochure tells me the Maximum Rate of Return for the Term is 35%. Sounds to me like their investments made more than the max and you don't get a piece of that. 

Though I suppose the guarantee of your principal may just be worth that to some.


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## buick1957 (Jan 13, 2010)

I think of a better investment than prgressive or market GICS why not your principle is secure, tell me what investment is better?


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## Belguy (May 24, 2010)

With guarantees, always come fees!!

What is the guarantee costing you in fees and is it worth it?

As soon as any investment is 'guaranteed', I tend to run away from it!!


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## buick1957 (Jan 13, 2010)

Belguy said:


> With guarantees, always come fees!!
> 
> What is the guarantee costing you in fees and is it worth it?
> 
> As soon as any investment is 'guaranteed', I tend to run away from it!!


I never paid any fees with my progressive GICS!


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## HaroldCrump (Jun 10, 2009)

buick1957 said:


> I never paid any fees with my progressive GICS!


The "fees" are built into the rates.
The capped upside is also a "fee", which ensures that the bank makes more money than you if the market remains bullish during the term of your GIC.
Didn't you discuss this before?


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## buick1957 (Jan 13, 2010)

HaroldCrump said:


> The "fees" are built into the rates.
> The capped upside is also a "fee", which ensures that the bank makes more money than you if the market remains bullish during the term of your GIC.
> Didn't you discuss this before?


ya I did discuss this before and it looks like I'm discussing it again!!!!!!!!!!!


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