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Investments | Choosing the “right” mutual fund



Equity, sector, balanced or fixed-income funds: the thousands of mutual funds on the market are enough to make investors dizzy. How to choose the one that will be “the right one” for us?

There are several categories of investment funds. Before even comparing the offers, determining your needs is essential if you don’t want to end up with a fund that doesn’t suit you. “Aspirin is a known and effective drug, but if you have hemophilia, it’s not a cure for you,” says Carl Thibeault, senior vice-president, Quebec, at IG Wealth Management.

For the appropriate antidote, one must first consider its purposes. The best investment will not be the same if you want to buy a house in five years as if you want to plan for retirement. “For example, we will choose a fund with a growth objective if we want to save in the long term, whereas a short- or medium-term investment must involve less risk,” points out Angela Iermieri, financial planner at Desjardins Wealth Management.

Our investor profile is also a game-changer. Some investors live very well with the fact that their investments fluctuate from day to day. This situation, however, is causing others to lose sleep. We must therefore assess our risk tolerance.

Dissect the fund in the smallest details

A good mutual fund is an open book. The fund facts – a document that summarizes the basic information – allows you to know the composition of the investments, the returns, the manager and his approach as well as the associated risks.

“We have to go beyond the name. A Canadian equity fund, for example, can be a growth fund or a fund with less volatility. We must be able to quickly know what is going on and understand the details,” said Mr. Thibeault.

Management fees are also an important element to look at. These vary from fund to fund and depend, among other things, on the complexity of the portfolio and the market in which it is invested. The more complicated the management, the higher the costs.

Carl Thibeault remarks that management fees can be essentially divided into two portions. “There are fees that pay the portfolio manager and fees related to the advisory service,” he says.

Thanks to the CRM2 (or client-advisor relationship model 2, a series of rules established by the Canadian Securities Authorities, Editor’s note), we are able to know the details of the fees charged in dollars and in percentage in all the institutions Canadian financial institutions at least once a year. It can thus be assessed whether these are justified in relation to the performance of the fund.

“As in any situation, you have to see the retribution. Does anyone help us with our financial planning, for example? You have to assess what you pay and what you receive in exchange,” he adds. An advisor can help us see things more clearly.

What about our values?

In addition to financial considerations, more and more investors are choosing investments that match their values.

“You can opt for a responsible investment fund, which takes into account environmental, social and governance criteria,” explains Angela Iermieri. In particular, it can bring together companies that focus on the protection of the environment or the rights of workers. Some funds also exclude companies that work in armaments or oil companies.

A mutual fund can, after all, perform well while sharing our ideals.

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