When You Own Mutual Funds You’ve Got Management On Your Side

By purchasing mutual funds, you can take the worrisome guesswork out of owning stocks. Fluctuations are not as terrifying because you know that you have your own professional portfolio managers who understand that volatility in the market also brings opportunities. They can purchase stocks in a mutual fund’s portfolio at lower unit/share prices, at exactly the time when many, motivated by fear, might sell. If the market moves downward, you can purchase valuable mutual fund units/shares at lower prices when demand declines, just as you can save if you buy overcoats in spring.

Diversify leads the mutual fund advantage: A good equity mutual fund holds a diversified group of stocks in its portfolio, thereby reducing the likelihood of all the assets held within the fund losing value in a decline. In fact, many managers will hold more cash if they feel that the market will soon decline. The average investor buys stocks at their peak because they feel good about the growth witnessed in a rising bullish market. Thus, they buy right when the stocks cost more. Conversely, most people get nervous, selling their securities after the market has moved downward, and the value of their portfolio holdings has decreased.

The wisdom of long‑term investing: It is almost impossible to time the market accurately, but there are two effective long‑term strategies to eliminate the temptation to try timing the market.

Stay invested: Buy and hold mutual funds whose managers buy value‑oriented stocks. They will normally regain any lost value as the markets rebound after a decline. Staying invested during a market downturn, and actually buying more fund units, is referred to as contrarian investing, meaning the strategy is contrary to what most fearful people might decide.

It is TIME in the Stock Market that counts, NOT MARKET TIMING!

Dollar cost average: You invest a fixed amount of money, buying mutual fund units at regular intervals. Using this method, you buy fewer units when the prices are higher, and more when lower. You actually win when you buy more mutual fund units/shares at reduced prices because, eventually, the market moves back up. Based on timidity, not knowledge, many redeem their mutual fund units just when they should be buying more. The investors who achieve enhanced profits are those who buy more of their favourite stocks or equity mutual fund units when their value goes down.

The risk of guarantees: Those who insist on guaranteed investments generally lose after the cost‑of‑living and taxation is factored in. For example, if you earn 4% in a GIC (term deposit) in a 50% tax bracket, you earn 2% net after tax. If inflation runs at 3%, you actually lose 1% in buying‑power each year you hold that GIC (term deposit). With mutual funds, your portfolio manager purchases stocks belonging to living companies in a diversified portfolio (of pooled investments) and thus can achieve capital growth over longer terms of five years or more. If you see the market is softening, ask your investment advisor if he or she knows of any current opportunities to purchase equity mutual fund units at lower prices.

Call today to set up an appointment to review your goals and objectives to ensure that your current investment approach will fulfill your goals.

We will look at your sources of income, the physical assets you have, such as home, other real estate, etc. We will also review the various investments that you have that will be generating retirement income, now and into the future.

Also, visit my business website (myfinancialsolutions.ca) for additional financial information on insurance, retirement/estate planning, investments and whole host of other financial topics.

Robert Hughes,
P. Eng., CFSB, CFP, CPCA