Expect the Unexpected in Life: An Insurance Blog

Haha fund fun, fund fun, fund fun...FUN FUN! :)

Alright so I've been talking about the ways in which you can start saving, you have the TFSA and the RRSP you can also just invest in funds and accept all of the tax implications if you so choose (non-registered investments).

All of these abbreviations and letters are confusing I know and I'm going to throw something else into the mix.

FUNDS...wait? how did you guess?

What is a fund anyway?

I'm glad you asked! A fund is a conglomerate of stocks that is managed by someone called a fund manager (stock expert extraordinairre). You give the company the money you would like to invest and they add it to the current value of the fund. You get a certain number of shares or units in the fund for the amount you contribute. Contributing to a fund decreases the overall risk of investing in stocks because the fund manager ensures that your money is divided up (diversified) into the best possible stocks/bonds/t-bills for what you expect from the fund. There are lots of different options from lower risk "income" type funds to higher risk "aggressive growth" funds. It's up to you to choose what type of volatility you can handle for the amount of increase you would like to see.

Now there are two major types of funds that you can invest in and it all comes down to how your advisor is licensed, what they prefer to sell, or what they think is best for you.

There's the Mutual Fund: Invests directly into the market and doesn't provide any type of guarantee. If you lose your money it's gone for good, this can happen but mutual funds in general aren't bad or dangerous. On average mutual funds have lower annual management fees than segregated funds. These are offered by mutual fund companies such as Trimark, Fidelity, CI Funds etc.

Then there's the Segregated Fund: This type of fund is an insurance based fund. It is very similar in working and feel to a mutual fund. The biggest difference is these funds can provide a guarantee. Most companies guarantee 75% of the money deposited will be returned to you if the fund is lower than that at your 10 year maturity date. They also guarantee that 100% of the money you've deposited is returned to your beneficiary upon your death. This guarantee is nice to have because you never know what can happen. On average the annual management fees are a little higher that mutual funds so they can offer the guarantee. Otherwise you get the same benefit investing in "seg funds" as you would in mutual funds, a professional fund manager.

Here's how I see things.

Funds = Great long term growth and stability

Stock = Gambling, high short term payoffs but very easy to screw up and lose everything. Investing in stocks is fine but it can become an addiction like gambling. If you do just be sure to use money you're ok with losing & keep your retirement savings tied up in funds.

Well I hope that wasn't too confusing, if you have questions feel free to comment or ask me in person!

Have a good one!

Mike