Why do Mutual Funds dominate the investment market?


Despite all the hype one hears about South Asians investing in real estate in large numbers, many choose mutual funds to grow their money over the long term.

Understanding Mutual Funds

A mutual fund is a pool of investments that includes securities such as stocks or bonds, and are entirely managed by a team of investment professionals. Rather than handpicking only a few securities, mutual fund investors benefit from having a diversified portfolio. A mutual fund holder earns a return based on the weighted average performance of the entire portfolio of investments. There are over 3,000 mutual funds in Canada. Mutual funds primarily invest in three broad types of asset classes: cash, stocks, and bonds.

Why choose Mutual Funds?

Mutual funds are appealing for three reasons- firstly, considering there are several monthly financial commitments towards running a home, people don’t have large amounts of money to invest in a diverse set of markets.

According to Trevor Philp, a senior Product Manager from BMO: “A customer can simply buy mutual funds by going to their local bank and continue to do so with pre-authorized bi-weekly or monthly contributions. Often people don’t have large sums to put away given they live on a budget, have to make mortgage payments and have other family priorities. They can start with even a $50 monthly contribution toward mutual funds,” he said.

Secondly, Mutual funds are monitored by professionals who do their utmost to get the maximum growth possible and provide their customers with peace of mind.

Thirdly, due to the hectic work life, there is no time left to stay updated with the financial market trends. Mutual funds appeal to people who don’t have the time or inclination to monitor and track the performance of their investments.

Before investing in mutual funds it is important the investor understands the fundamentals. “People looking at mutual funds need to invest in what they are comfortable with, whether it is property or mutual funds – as there are risks in both options. People think investing in property comes without risk, which is not true. However, historically housing keeps pace with inflation. Longer term investments in mutual funds gives the investor diversification over property. If one invests in just one area and if it were to go down, it is risky. Traditionally, buying a property has usually been a sound investment, but investors need to own different types of investments. Investing in only one stock or property exposes one to a greater degree of risk,” says Mr. Philp.

When a customer connects with a BMO investment professional, they first work to understand the customer and their situation, and help them narrow down their financial goals.

Based on that discussion, several investment objectives might emerge (such as investing for an upcoming grand wedding ceremony, children’s education, family vacation, down-payment for the dream home etc.). The investment professional will then help them select a portfolio that aligns to their risk tolerance, and best suits their overall investment needs.

The BMO SelectTrust® Portfolios is a suite of professionally managed portfolios designed to provide an easy-to-use, all-in-one investment solution that can form the core of a customer’s investment portfolio.

BMO SelectTrust® Portfolios are regularly rebalanced. The weighting of each asset class (such as equities, fixed income, and cash) in a given BMO SelectTrust® Portfolio is carefully monitored and adjusted to stay within a specific range. This is a real benefit to customers because an investment portfolio’s overall level of risk can easily reach unacceptably high levels if nothing is done. For example, equities generally have a higher return than fixed income, but this comes at the cost of higher risk (generally speaking). So as equities outperform relative to fixed income, they can start to make up an ever-greater percentage of the investment portfolio, which will also increase the level of risk in the portfolio.

The advantage of dealing with BMO is that they have a long and solid history of helping their customers achieve their financial goals. Being a global investment asset management entity, they have offices in different countries and can draw on the experiences and opinions from different markets to help their customers during various market cycles.

A BMO investment professional can not only help their customers understand their financial needs, but can also help them come up with a long-term financial plan. In addition, they provide regular portfolio reviews, keep you informed on market trends and new investment strategies, and are accessible by phone, email or online.

Visit BMO.com/selecttrust to book an appointment and learn how you can get up to $750 when you invest by March 1, 2017*

® “BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.Investment professional refers to Financial Services Managers, Financial Planners, Investment and Retirement Planning and Investment Specialists that are representatives of BMO Investments Inc.

BMO Mutual Funds are offered by BMO Investments Inc., a separate legal entity from Bank of Montreal. Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments. Please read the fund facts or prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

See Terms and Conditions for complete details.