Mutual funds are considered to be the safest and secured way for investing money. Traditionally banks were the only mode of saving money with less risk.
Since the fund company had to pay the advisor the commission what they do is increase the MER of the fund by about 0.5% compared to Class A units. This means your return will be 0.5% lower each year compared to if you had bought the Class A fund. When you buy this type of fund you are also locked in for a period of seven years (time frame could vary). If you sell prior to this you have to pay a penalty to the fund company allowing them to recoup the commission they paid to the advisor. Between the locked in period and the higher MER this option is clearly not in the client's best interest.
There are short term, middle term and long term investments and in order to witness exponential growth you will need to invest your money in top mutual funds. People having excess money but no time to invest in stocks may find mutual funds to be the best option. There are lots of companies that have evolved with time and have been performing well in the market and are considered to be safe by almost all the investors. It gives you an opportunity to attain various stocks and bonds. Top mutual funds have the best fund managers who have a vast exposure in the market.
Then I remember how much money the mutual fund companies and investment advisors make off actively managed funds and it all makes sense. Of course mutual fund companies and advisors do not want to admit actively managed funds may not be the best option for investors, because they will earn less money if everyone starts using index funds. All of the data clearly shows that very few actively managed funds beat the index. The longer the time frame you look at the more the data points to index investing being the superior option.
I took the most widely owned Canadian equity fund, the RBC Canadian Equity Fund and compared the holding to the RBC Canadian Index Fund. The data used is from the RBC 2009 semi annual report which had the holdings as of June 30, 2009. The majority of the investments held in the two funds, 77.36%, were the same, with 22.64% being different. It is only the returns of this 22.64% of unique assets of these two funds and total fees which will have an impact on the variance of their returns. The MER of the RBC Canadian Equity Fund was 1.97% and the RBC Canadian Index Fund was 0.68% a difference of 1.29%.
People buy actively managed investments with a goal of beating the index. To beat the index fund by just 1% the unique assets would have to outperform by 11%. This is why most actively managed funds have underperformed the indices in the past and will most likely continue to do so in the future Since the holdings in these funds are so similar anyways just take the lower fee index option and be happy that you should do better then an actively managed fund about 90% of the time.
Since the fund company had to pay the advisor the commission what they do is increase the MER of the fund by about 0.5% compared to Class A units. This means your return will be 0.5% lower each year compared to if you had bought the Class A fund. When you buy this type of fund you are also locked in for a period of seven years (time frame could vary). If you sell prior to this you have to pay a penalty to the fund company allowing them to recoup the commission they paid to the advisor. Between the locked in period and the higher MER this option is clearly not in the client's best interest.
There are short term, middle term and long term investments and in order to witness exponential growth you will need to invest your money in top mutual funds. People having excess money but no time to invest in stocks may find mutual funds to be the best option. There are lots of companies that have evolved with time and have been performing well in the market and are considered to be safe by almost all the investors. It gives you an opportunity to attain various stocks and bonds. Top mutual funds have the best fund managers who have a vast exposure in the market.
Then I remember how much money the mutual fund companies and investment advisors make off actively managed funds and it all makes sense. Of course mutual fund companies and advisors do not want to admit actively managed funds may not be the best option for investors, because they will earn less money if everyone starts using index funds. All of the data clearly shows that very few actively managed funds beat the index. The longer the time frame you look at the more the data points to index investing being the superior option.
I took the most widely owned Canadian equity fund, the RBC Canadian Equity Fund and compared the holding to the RBC Canadian Index Fund. The data used is from the RBC 2009 semi annual report which had the holdings as of June 30, 2009. The majority of the investments held in the two funds, 77.36%, were the same, with 22.64% being different. It is only the returns of this 22.64% of unique assets of these two funds and total fees which will have an impact on the variance of their returns. The MER of the RBC Canadian Equity Fund was 1.97% and the RBC Canadian Index Fund was 0.68% a difference of 1.29%.
People buy actively managed investments with a goal of beating the index. To beat the index fund by just 1% the unique assets would have to outperform by 11%. This is why most actively managed funds have underperformed the indices in the past and will most likely continue to do so in the future Since the holdings in these funds are so similar anyways just take the lower fee index option and be happy that you should do better then an actively managed fund about 90% of the time.
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