Although Canada’s investment landscape keeps evolving to offer new products, mutual funds remain a popular option for Canadian investors – with 89% of investors citing them as their most frequently held investment product.1 And for good reason – mutual funds deliver instant diversification and professional money management in a cost-effective vehicle that’s easy to access. You’ll find mutual funds are widely available for sale through banks, financial planning firms, brokerages, credit unions and other investment firms.
What is a mutual fund?
A mutual fund is a professionally managed investment that pools money from different investors to invest in stocks, bonds, short-term money market instruments or other securities. Supported by a team of analysts, the portfolio manager’s primary goal is to identify investment opportunities that help achieve the fund’s investment objectives set out, such as capital preservation, capital growth and/or income generation.
So how do Canadian investors make the most of their mutual fund investments? Here are five essential tips to help you be a more savvy mutual fund investor.
1. Always invest with a plan
While contributing regularly to your mutual funds is a great start, it’s essential to have a financial plan to help guide your investments and make changes when necessary. Each year, you should take the time to re-evaluate your investment goals – whether that’s retirement, funding a child’s education or saving for a home – and adjust your plan as you enter different life stages, such as getting married, starting a family or perhaps going back to school for an advanced degree. A Scotiabank advisor can help you build a financial plan to meet your goals – for today and the future.
Refer to the article Our top advice picks for 2022 for key reasons for having a financial plan.
2. Invest automatically with Pre-Authorized Contributions
The most effective way to make sure your mutual fund investments grow is by making regular pre-authorized contributions (PACs). While markets can fluctuate, PACs help to provide a steadying influence, consistently adding to your principal investment throughout the year. By contributing on a regular basis, you take advantage of the market dips by purchasing more fund units when your dollar goes farther and in turn, lowering your average cost. With PACs, you’re in control of how much you save and how often you save it. The amount you choose will be automatically be deducted from your savings or chequing account and deposited into your investment account.
Visit scotiabank.com/PAC to try our interactive PAC video to see how your investments can grow.
Refer to the article How the “PAC” mentality can help your long-term investment goals for more information on the benefits of setting up PACs.
3. Understand your risk tolerance
When it comes to investing, there are always certain risks – from recessions and financial crises to unforeseen global events, like the ongoing COVID pandemic. It’s therefore essential to take some time to think about your personal risk tolerance. How would you react if your portfolio suddenly dropped 20% over the course of a few weeks? Would you ride out the volatility or withdraw your funds altogether and lock in your losses (which is usually a regrettable move). Talk to your Scotiabank advisor. They can help determine your unique risk tolerance and then build a portfolio that’s suited to your investment style.
4. Avoid excessive trading and stay focused on the long term
Famed economist Eugene Fama once said, “Your money is like a bar of soap – the more you handle it, the less you’ll have.” While it’s sometimes tempting to act on a hot investment tip or constantly revise your portfolio, it’s important to remember that the key to investing success is staying focused on the long term. That means having a solid financial plan and sticking with it. By having a long-term mindset, you can focus on the big picture, instead of trying to respond to every short-term market event.
5. Invest with advice
Everyone needs advice from time to time. Investing is certainly no different. Recent studies have shown that investors who work with an advisor for 15+ years accumulate 2.3x more assets than those who don’t.2 Even if you feel comfortable selecting your own investments, financial advisors perform an array of specialized services that can help toward realizing your financial goals – whether that’s helping build a financial plan, selecting tax-efficient investment products or making sure that your insurance needs are met.
Refer to the article Our top advice picks for 2022 for more information on the recent research showing how households working with an advisor increase their wealth over time.
Would you like to learn more?
Have a look at the helpful videos and tools available on scotiafunds.com/videos to learn more about mutual funds, investing essentials and some of the products provided by Scotiabank:
- Mutual Funds 101
- Investing Essentials Video series
- Scotia Portfolio Solutions
- Scotia Aria® Retirement Program