Where is my local Mutual Funds 'R' Us?
June 7, 2010 8:20 PM Subscribe
Where do I go to get mutual funds and bonds? Are there certain types I should be getting?
First off, I'm in Canada so anything not available in Canada isn't much help unfortunately. :(
First, I have been reading about investments and money management for a while after having absolutely 0 knowledge of anything beyond "money goes in bank". I now know to divide up my investments, what types of investments to make, and all that stuff, but how do I actual purchase or invest my money? Where do I go and how do I get these things? I read somewhere that banks aren't the best place to buy from because of fees, limited options, or something similar (plus I don't like the idea of large corporate banks). Where should I go?
Second, what is the best strategy to investing? Or where could I find the best strategy keeping in mind I'm in Canada? I read "The Lazy Person's Guide to Investing" and few other books. After doing some other research, I planned everything based around different types of Vanguard mutual funds. Apparently, as I just learned, this isn't an option in Canada. (Making all of that a big waste of time.) Is there an equivalent strategy somewhere?
First off, I'm in Canada so anything not available in Canada isn't much help unfortunately. :(
First, I have been reading about investments and money management for a while after having absolutely 0 knowledge of anything beyond "money goes in bank". I now know to divide up my investments, what types of investments to make, and all that stuff, but how do I actual purchase or invest my money? Where do I go and how do I get these things? I read somewhere that banks aren't the best place to buy from because of fees, limited options, or something similar (plus I don't like the idea of large corporate banks). Where should I go?
Second, what is the best strategy to investing? Or where could I find the best strategy keeping in mind I'm in Canada? I read "The Lazy Person's Guide to Investing" and few other books. After doing some other research, I planned everything based around different types of Vanguard mutual funds. Apparently, as I just learned, this isn't an option in Canada. (Making all of that a big waste of time.) Is there an equivalent strategy somewhere?
Best answer: I'm not in Canada, but I can give some general advice that ought to be useful to you, and others can fill in Canada-specific details. Basically, you want to sign up for an account with some sort of brokerage firm. Here's a chart comparing some of your low-cost options. There are also more expensive full-service firms where instead of managing your money yourself, you can get more advice from a broker on what to do.
When you open an account, you have a few choices for account type depending on what you want to accomplish. There's a straight up normal brokerage account, which works like a bank account, except it lets you invest in stocks and funds instead of just keeping your cash in the account. Based on some quick googling, you can also open an RRSP (retirement) or TFSA (savings) account, which offers special tax benefits, but comes with restrictions on the amount you can contribute (deposit into the account) each year. It would seem to me, keeping in mind that this is based on very little knowledge of Canadian taxation, that you would want to open a RRSP or TFSA depending on whether your goal is to save for retirement or plan to use the money in the shorter term, and max out your contribution there, so as to get the tax benefits of the special account (with a TFSA, there's no capital gains tax when you sell your investments, and with a RRSP, you get an income tax deduction for contributing). If you want to invest more money than you are allowed to contribute to these special accounts, you can open a normal brokerage account as well and put the rest in there.
I wouldn't worry too much about replacing the Vanguard funds. All mutual funds belong to various categories that describe their investment strategy. So there are small-cap growth funds (investing primarily in stocks of small companies with large potential to grow) and large-cap value funds (investing primarily in stocks of large companies believed to be undervalued) and emerging markets bond funds (investing in bonds from countries like China and Brazil) and everything else in between. Your brokerage firm will have tools online where you can look at funds meeting various criteria. Morningstar Canada is the Canadian version of Morningstar.com, a site that tracks and rates mutual funds by category.
So basically, you've decided what types of investments you want to make and have picked Vanguard funds matching those areas. If you can't invest in those specific funds, you can go to Morningstar, look at the fund categories you're interested in, and compare the performance and cost of various funds. You can do this with their fund selector or perhaps use their create portfolio tool. You want to be looking at both the past performance of the funds (how much money they've made/lost in the past, as compared to their competitors) and their expenses (the percentage they take as a fee for their services). Morningstar also has graphs that give you an idea of the relative risk and return of different funds, so you can decide how much risk you're comfortable with.
Once you have a fund in mind, you can follow the link on Morningstar to read the fund's Prospectus, the legal document that spells out the fund's investment strategy and plans. You'll want to look at the various "share classes" available for the fund. Some may have minimum investments and charge a fee to buy or sell shares in the fund. Generally, funds have some share classes more suited towards short-term holdings, where you pay a fee to buy shares, but can sell at anytime for free, and others more suited towards long-term investing, where there's no fee to buy, but a fee if you sell within a certain time period, generally around 5-7 years. It's not a huge deal, but something to be aware of.
Once you've got your picks lined up, the rest is easy: just sign into your brokerage account, enter the symbol for your investment and the amount you want to invest, and push the button. If you run into any trouble at this stage, there will be a phone number for you to call. Happy investing!
posted by zachlipton at 9:06 PM on June 7, 2010 [1 favorite]
When you open an account, you have a few choices for account type depending on what you want to accomplish. There's a straight up normal brokerage account, which works like a bank account, except it lets you invest in stocks and funds instead of just keeping your cash in the account. Based on some quick googling, you can also open an RRSP (retirement) or TFSA (savings) account, which offers special tax benefits, but comes with restrictions on the amount you can contribute (deposit into the account) each year. It would seem to me, keeping in mind that this is based on very little knowledge of Canadian taxation, that you would want to open a RRSP or TFSA depending on whether your goal is to save for retirement or plan to use the money in the shorter term, and max out your contribution there, so as to get the tax benefits of the special account (with a TFSA, there's no capital gains tax when you sell your investments, and with a RRSP, you get an income tax deduction for contributing). If you want to invest more money than you are allowed to contribute to these special accounts, you can open a normal brokerage account as well and put the rest in there.
I wouldn't worry too much about replacing the Vanguard funds. All mutual funds belong to various categories that describe their investment strategy. So there are small-cap growth funds (investing primarily in stocks of small companies with large potential to grow) and large-cap value funds (investing primarily in stocks of large companies believed to be undervalued) and emerging markets bond funds (investing in bonds from countries like China and Brazil) and everything else in between. Your brokerage firm will have tools online where you can look at funds meeting various criteria. Morningstar Canada is the Canadian version of Morningstar.com, a site that tracks and rates mutual funds by category.
So basically, you've decided what types of investments you want to make and have picked Vanguard funds matching those areas. If you can't invest in those specific funds, you can go to Morningstar, look at the fund categories you're interested in, and compare the performance and cost of various funds. You can do this with their fund selector or perhaps use their create portfolio tool. You want to be looking at both the past performance of the funds (how much money they've made/lost in the past, as compared to their competitors) and their expenses (the percentage they take as a fee for their services). Morningstar also has graphs that give you an idea of the relative risk and return of different funds, so you can decide how much risk you're comfortable with.
Once you have a fund in mind, you can follow the link on Morningstar to read the fund's Prospectus, the legal document that spells out the fund's investment strategy and plans. You'll want to look at the various "share classes" available for the fund. Some may have minimum investments and charge a fee to buy or sell shares in the fund. Generally, funds have some share classes more suited towards short-term holdings, where you pay a fee to buy shares, but can sell at anytime for free, and others more suited towards long-term investing, where there's no fee to buy, but a fee if you sell within a certain time period, generally around 5-7 years. It's not a huge deal, but something to be aware of.
Once you've got your picks lined up, the rest is easy: just sign into your brokerage account, enter the symbol for your investment and the amount you want to invest, and push the button. If you run into any trouble at this stage, there will be a phone number for you to call. Happy investing!
posted by zachlipton at 9:06 PM on June 7, 2010 [1 favorite]
Some would say I'm currently very unqualified to offer financial advice, but...
Mutual funds are a quite poor deal, due to the fees etc that are assessed against them by their providers and managers. The banks want to sell them because they make money from them.
A better bet would be to buy into some of the ETFs that are traded on the TMX. You probably want to get an index tracking fund. TMX helpfully provides a complete list of ETFs traded on its exchange. Note that an "inverse" fund is one that increases in value when the market it tracks goes *down* in value.
Safest bets? Hard to say of course, but there are things like XSP, the iShares ETF that tracks the S&P500 but also hedges against currency exchange rate fluctuations.
posted by lowlife at 7:42 AM on June 8, 2010
Mutual funds are a quite poor deal, due to the fees etc that are assessed against them by their providers and managers. The banks want to sell them because they make money from them.
A better bet would be to buy into some of the ETFs that are traded on the TMX. You probably want to get an index tracking fund. TMX helpfully provides a complete list of ETFs traded on its exchange. Note that an "inverse" fund is one that increases in value when the market it tracks goes *down* in value.
Safest bets? Hard to say of course, but there are things like XSP, the iShares ETF that tracks the S&P500 but also hedges against currency exchange rate fluctuations.
posted by lowlife at 7:42 AM on June 8, 2010
Forgot to mention: ETFs have fees too, but they're usually much lower than mutual fund fees.
posted by lowlife at 7:43 AM on June 8, 2010
posted by lowlife at 7:43 AM on June 8, 2010
This thread is closed to new comments.
A good, short article on this strategy is Limited Menu: Choose Only 3. (Apologies, this is a google cache of a word document of a reprint of a Wall Street Journal article. Still worth reading though.)
The point of the article is that you really only need to buy 3 index funds to have yourself covered. For most people any strategy more complex amounts to a hobby, not an investment strategy.
posted by alms at 8:51 PM on June 7, 2010