Are mutual funds a good investment for you?

Want expert advice on mutual funds?

When you’re thinking of investing, it pays to consider the competition. Not only to find the right company to invest with (one that shares your values is a good place to start), but also to discover the pros and cons of similar products.

If you already know the benefits of mutual funds (summarized again in the Segregated Funds vs Mutual Funds section below), we’ll outline a few of the investing products that are commonly compared. Information that, we hope, will make you feel confident in your eventual decision.

Other investment products vs mutual funds

Before we dig in, you should know that Co-operators does not offer all of the investing solutions discussed below; specifically stocks, exchange traded funds (ETFs), index funds or guaranteed investment certificates (GICs). Because these products are popularly compared with mutual funds, which we do offer, we’ve outlined some basic points for comparison, and what you may expect from each investment vehicle.

Comparing ETF vs mutual fund investing? Both are baskets of investments that include stocks, commodities, bonds, etc. The main difference between ETF and mutual fund investing concerns the associated costs of investing (mutual funds cost more, given the professional fund management).

Wondering about mutual funds vs stocks? Unlike mutual funds, which are bundled investments that are selected and managed for you, stocks are individual shares of companies that are bought and sold (or “traded”) on an investment exchange, like the Toronto Stock Exchange (TSX). With stocks, you generally select and manage trades on your own or use a stockbroker to facilitate trades on your behalf.

Considering the index fund vs mutual fund option? Based on the theory that the long-term market will outperform any single investment, an index fund (a type of mutual fund or ETF) is a portfolio of stocks and other assets that match a specific market index. Like ETFs, index funds are subject to lower expenses than actively managed mutual funds.

Investing in a GIC vs mutual funds? Unlike mutual funds, GICs secure your money. With a GIC, you’re essentially lending your money for a fixed amount of time, which the bank invests and returns an agreed-upon portion of the profits in the form of interest on your principal. Because your savings are secured, GICs offer little in the way of growth potential.

Investment Types

This list compares mutual funds with the main features of the products mentioned above:

Stocks

  • Investing horizon: suitable for long-term, like mutual funds.
  • Risk: higher than mutual funds.
  • Reward: higher than mutual funds.
  • Time & expertise: requires a higher level of research, investment knowledge and ongoing attention than mutual funds.
  • Liquidity: equally liquid to mutual funds; can be easily bought and sold.
  • Costs & fees: lower than mutual funds.

ETFs

  • Investing horizon: suitable for long-term.
  • Risk: similar to mutual funds.
  • Reward: higher than mutual funds.
  • Time & expertise: requires a higher level of research, investment knowledge and ongoing attention than mutual funds.
  • Liquidity: equally liquid to mutual funds; can be easily bought and sold.
  • Costs & fees: lower than mutual funds.

Index Funds (a type of mutual fund or ETF)

  • Investing horizon: suitable for long-term.
  • Risk: depends on the type of index fund.
  • Reward: depends on the type of index fund.
  • Time & expertise: requires a lower level of investment knowledge.
  • Liquidity: equally liquid because it is a mutual fund.
  • Costs & fees: generally a less expensive mutual fund.

GICs

  • Investing horizon: suitable for short term (between one and 10 years).
  • Risk: lower than mutual funds (there’s a guarantee of interest on your savings).
  • Reward: lower than mutual funds.
  • Time & expertise: requires a lower level of investment knowledge.
  • Liquidity: less liquid than mutual funds; deposits are locked in for a fixed time.
  • Costs & fees: lower than mutual funds.

NOTE: The Co-operators does not offer the products listed above.

Segregated funds vs mutual funds

In terms of product features, segregated funds offer the closest match to mutual funds. Segregated funds – an investing solution only offered by insurance companies, like Co-operators – can help you achieve a lot of the same things as the products above. For example, they’re good for both short-term and long-term saving. They are managed by professional fund managers. And they can help your money grow, while guaranteeing up to 100% of your principal investment.

When it comes to a segregated funds vs mutual funds comparison, you’ll find that both are professionally managed “pools” of investments; both offer opportunities for diversification; and both let you save in a way that fits your budget. Use this in-depth comparison to determine the better choice for you.

What do they offer?

  • SF: Market-growth potential and insurance benefits: maturity and death guarantees, efficient transfer to heirs and potential creditor protection.
  • MF: Market-growth potential.

What are the guarantees?

  • SF: 75% or 100% of the principal, upon maturity and death.1 And automatic resets: Depending on your age at purchase and your guarantee level, a death benefit reset will protect your investment growth in the event of a premature death.
  • MF: There are no guarantees, including no maturity or death benefit guarantee. Mutual funds do not offer automatic resets, given that they don’t have a maturity or death benefit guarantee.

What are the fees?

  • SF: A Management Expense Ratio applies,2 which includes an insurance fee since your benefit is insured under the policy.
  • MF: A Management Expense Ratio applies.2

Are they affected by market volatility?

  • SF: Yes, but your principal is protected, whether the market goes up or down.
  • MF: Yes. Both your principal and growth are subject to market gains and losses.

Can a beneficiary be named?

  • SF: Yes (registered and non-registered accounts).
  • MF: Yes (registered accounts only).

Are there impacts to estate planning?

  • SF: All registered and non-registered funds (with a named beneficiary) bypass probate.3
  • MF: Only registered funds (with a named beneficiary) bypass probate.3

What are the rules for withdrawals?

  • SF: Redeem for market value at any time; or, at maturity or death, get the market value or the guaranteed amount – whichever is greater.
  • MF: Redeem for market value at any time.

Do they offer creditor protection?

  • SF: In the event of a lawsuit or bankruptcy (with a named beneficiary), your funds may be protected from creditors. A perk for business owners!
  • MF: No protection from creditors, except in limited circumstances.

Why mutual funds?

There’s a lot to think about when it comes to finding the right investment solution. One notable factor is the level of saving and investing knowledge – and dedicated research and monitoring time – you’ll need for one choice over another. Before making your decision, consider who you rely on for information and direction.

With mutual funds, you’ll have built-in access to expert financial advice. The mutual funds we offer are managed by some of the most trusted fund managers in the country, bringing quality research, extensive knowledge and instant diversification to your investment. Meanwhile, your access to a Co‑operators financial representative will ensure that your goals are well defined – and successfully realized.

Know what you’re after?

Whether you’re defining your goals, exploring your investing style or looking for a single solution that ties it all together, speaking with a Co-operators financial representative can help. That way, you can be sure that you’re moving forward with confidence. Whatever your best solution may be. And whether it’s with The Co-operators or not. That’s the kind of service we offer.

With a better idea of how mutual funds compare with other investments, what's your next move?


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1. Maturity and death benefit guarantees are not available upon surrender of the segregated fund policy and are proportionally reduced by any withdrawals from or investment transfer out of the segregated fund.

2. The management expense ratio covers investment management, commissions, operating expenses and taxes.

3. After someone dies, their estate is subject to probate, which is the legal validation of their will. Probate or estate administration fees can be as much as 1.5% of the estate in some provinces. During probate, assets are frozen to bypass probate. This not only saves up to 1.5% of assets, it also relieves the burden on family of having to possibly go through a lengthy and complicated process to access funds.

*In the province of Quebec, the authorized representatives are Financial Security Advisors who have been duly certified by the Autorité des marchés financiers.

The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete and it should not be considered personal taxation advice. We are not tax advisors and we recommend that clients seek independent advice from a professional tax advisor on tax related matters. Mutual funds are offered through Co operators Financial Investment Services Inc. to Canadian residents except those in Quebec and the territories. Segregated funds and annuities are administered by Co operators Life Insurance Company. Co operators Life Insurance Company and Co operators Financial Investment Services Inc. are committed to protecting the privacy, confidentiality, accuracy and security of the personal information that we collect, use, retain and disclose in the course of conducting our business. Visit www.cooperators.ca/en/PublicPages/Privacy.aspx for more information. Co operators® is a registered trademark of The Co operators Group Limited.