I have questions about low-risk mutual funds

[orkut]

I'm saving money for a big downpayment on some property which I'm not
going to buy for a few years. So far, I've got $10,000. I'd like to
put this money into something where the chances of me losing any amount
of the money is minimal. I'm thinking of putting it in a GIC, but my
cousin says I should put it in a "money market" fund. So,


1) What is a "Money Market" fund?
2) Are there other kinds of funds that have the same minimal chance of
loss?
3) Which companies are good for this sort of thing? Altamira? CIBC?
Primerica?
4) What does "load" and "no-load" mean?
5) How much does it cost to purchase the fund units? How much does it
cost to sell the fund units?
6) How can I invest in such a way that I don't pay anything, such as
fees like a maintence fee or a transaction fee? Note: If I put the money in a GIC, I pay for nothing and lose nothing.
7) What are some good sites for looking at the performance charts of
mutual funds?

[DateMasamune]

I think you should take some mutual fund courses ...

[rubmeister100]

This $10,000 sounds pretty important to you and your future dream. You probably worked hard and made some sacrifices to save that much.

So, I'd suggest the safe route and just buy a GIC for the term you think you will want to use it.

MAYBE you can make your investments through an RRSP contribution and take out the money under the first time homebuyers program? Even if you already have a house, investing trough your RRSP creates an income tax deduction/refund which is allowed to grow tax free. You do have to pay tax on the year you take it out though.. but you are investing your tax refund also!

Yes, mutual finds can make some money but they can also erode your capital.

Tax implications of their internal trading etc can have implications on your normal income tax even when the fund makes no money. Sheilded within your RRSP they can be good over the long term. However, I just buy single stocks that I like the company and hold them within my RRSP. No churning commisions, fees etc.

The only guys guaranteed to make money out of a mutual fund is the trader and the salesman. And remember they are SALESMEN... not investment "counsellors" or brokers... SALESMEN.

Somebody has to pay for the Porsche Boxsters!

[foolnarnd]

Orkut,

Stop by your local bank branch and set up an appointment with a fund sales / financial advisor. Bring your list of questions with you and promise yourself you won't be signing anything.

They will answer all these fairly straight forward questions for you in anticipation of completing a transaction. But you are not obligated to do so and there should be absolutely nothing that you asked to sign for the sake of the conversation and queston you might ask.

After that go home and consider the answers. If you find yourself wondering what the meaning of any answer was, take the other poster's advice and get some more education. A little time spent educating yourself costs you nothing worth worrying about in the long run. A rash decision in the heat of the moment can cost you money and anguish.

As one of the brokers I deal with likes to sign off "Good luck with your trades." I've always taken that to mean "You're on your own now."

["Techie"]

I use to buy all my investments through my local bank (CIBC). The biggest problem I had was my "personal" advisor was different everytime I went in the bank to make investments which was about twice per year. After about the 5th or 6th "personal" advisor, I finally decided to switch to a small broker instead. Wow, what a difference! I meet with her twice per year and she knows all the details of my finances and makes recomendations based on my goals, profile, financial situation, etc. Since I've switched, my investments have been much better. I was in a managed portfolio at my bank but I found they never managed it like they claimed; or at least not very well. Do yourself a favour and see a personal advisor who is going to be around for a while. Find someone you can trust and then you can rely on them to explain all the lingo to you.

[shepherd]

At the moment, your best bet is probably to place your money in a high?-interest savings account, such as Ing Direct, which I believe is currently paying 3% (Usually about 2.4%). Short-term GIC's pay less, and mutual funds are not a good bet for the preservation of capital, particularly at this point in time. Sales are booming right now - and when everyone is getting in, it is a good sign that it is now time to get out, because the market usually heads south when sales are booming.

shepherd

[The Doctor]

Orkut

Where you place your money should be based on when you need to use it. Money market funds are a vehicle that invests primarily in short-term government instruments such as t-bills. They are very stable and a very good short-term investment.


MAYBE you can make your investments through an RRSP contribution and take out the money under the first time homebuyers program?
Good idea but the money must be in the RSP for a minumum of 90 days and is then paid back (thrugh contributions) in equal amounts over 15 years.

Yes, mutual finds can make some money but they can also erode your capital.
Money Market Funds do not[b] erode your capital. They have a fixed unit value and pay a yeild based on market rates. Currently money market yeilds are hovering around 2.75%. Equity or bond based funds will have a net asset value that fluctuates with the markets. I would not recommend this unless you don't plan to buy your house in the next three years.


Tax implications of their internal trading etc can have implications on your normal income tax even when the fund makes no money.
Every fund is different from this perspective and if you are planning to get into equity or bond funds you should look for a manager with lower turnover of their holdings and higher tax efficiency.

However, I just buy single stocks that I like the company and hold them within my RRSP. No churning commisions, fees etc.
A much riskier strategy than buying funds especially for someone with a smaller portfolio. Unless you have a significant portfolio you can't properly diversify your holdings and unless you are knowledgable enough, one bad decission can blow up your entire portfolio.

The only guys guaranteed to make money out of a mutual fund is the trader and the salesman. And remember they are SALESMEN... not investment "counsellors" or brokers... SALESMEN.
[b]rubmeister100, you really should stay away from suck ridiculous generalities unless you actually know what you are talking about.


Getting back to your original questions, loads refer to the commissions you pay to purchase a mutual fund. There are a wide choice in options and are usually based on whether you buy through a registered advisor or through a discount brokerage. No load funds probably will suit you best and your local bank can provide you with several money market options. Just make sure you are dealing with the registered fund salesperson and not the teller.

[rubmeister100]

Ok Doctor you say:

Quote:

rubmeister100, you really should stay away from suck ridiculous generalities unless you actually know what you are talking about.

to my contentions below.

1. The only guys guaranteed to make money out of a mutual fund is the trader and the salesman.

2. And remember they are SALESMEN... not investment "counsellors" or brokers... SALESMEN.

Tell me what is incorrect about what I have said? Specifically.

[Howdat]

I'm saving money for a big downpayment on some property which I'm not
going to buy for a few years. So far, I've got $10,000. I'd like to
put this money into something where the chances of me losing any amount
of the money is minimal. I'm thinking of putting it in a GIC, but my
cousin says I should put it in a "money market" fund. So,


1) What is a "Money Market" fund?
2) Are there other kinds of funds that have the same minimal chance of
loss?
3) Which companies are good for this sort of thing? Altamira? CIBC?
Primerica?
4) What does "load" and "no-load" mean?
5) How much does it cost to purchase the fund units? How much does it
cost to sell the fund units?
6) How can I invest in such a way that I don't pay anything, such as
fees like a maintence fee or a transaction fee? Note: If I put the money in a GIC, I pay for nothing and lose nothing.
7) What are some good sites for looking at the performance charts of
mutual funds?


The reality is that this money will be invested outside an RSP which means that any appreciation will be taxable. Now, safe investments (i.e GIC's and MMF's) will generate interest income which is taxed at 100%.

My suggestion is to use the ING route rather than a MMF - yields will be similar and simple. MMF's a good but yields virtually nothing. If you plan to go this route, look at a monthly income fund that will offer you a higher yield than MMF's and about the same amount of risk as MMF's.

Banks know that clients looking to invest will choose the MMF over equity due to their risk tolerences. Therefore, the management fees are the same if not hire than some mutual fund companies - it's easy money for them.

Most investment professionals at bank brances are are useless. Make a choice and execute - don't let them sway you without further research.

[emvee]

There's some really good advice here. Back in the good old days, advisors were basically compensated on the growth of your portfolio. Over time, the pay formula has moved more to how much revenue he/she produces for the firm.

Put more simply, they used to work for you, now they work for the firm.

Some good advisors still prefer the old way, and many have changed firms because they were forced by the firm to basically push product on their clients that they knew their client didn't want or need.

If you go for mutual funds, check the MER (management expense ratio). The MF companies make money regardless of market direction. I trust them the least.

Also note that there are a zillion types of Mutual funds - low risk, low return things like Money market funds, to high risk venture funds.

You also need to set an investment profile:
- growth (accumulate wealth over longer time span)
- preservation of capital (how much are you will to take risk in order to increase returns)
- income (is the investment to provide as an income source).

Generally money market funds are geared to either short term investments or for seniors with an Income goal. I don't think that's what you may want unless you are extermely risk averse and are ok with your investment not growing much.

I'd suggest looking at either low-MER blue chip equity funds, or exchange traded funds (like XIU on the TSX). But I'd wait until November. October historically is one of the worst performing months for the markets.

The Globe and Mail's mutual fund site has a lot of good information - www.globefund.com

Good Luck!

[orkut]

Thanks to everyone for their input.