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| Adrian Mastracci, president of KCM Wealth Management, says “Maintaining perspective vis-à-vis one’s goals is all important. Being aware of the investment alternatives is a good start." |
For Immediate Release
Vancouver, BC (December 17, 2004): The business headlines have detailed the market timing trading practices for some mutual fund companies in Canada.
Adrian Mastracci, “fee-only” investment counsel at Vancouver based KCM Wealth Management says, “Investors have placed their savings into a flood of mutual funds. While investor fears have risen from the reported practices, investors should exercise caution and judgement when contemplating heading for the exits.”
“Investors want transparency, fair treatment and an even playing field,” adds Mastracci, “And they are entitled to that.”
“Investors don't need any of the reported obstacles and distractions,” explains Mastracci, “But let's realize that not every fund company is engaging in these practices.”
Some due diligence and perspective helps. Investors may consider these ideas:
- The central question is: "What is important to investors about their portfolios?"
- Become familiar with the mutual fund prospectus. It’s boring reading, but it contains an abundance of information.
- Calculate the investment costs. A typical equity mutual fund cost is 2.5% to 3%. Compare that to an investment counsel model typically under 1.5%. In addition, deductibility of the fees for non-registered investments helps reduce costs.
- Obtain an explanation of all costs, whether invoiced or not. Front end loads, deferred sales charges and redemption fees may apply. Not to mention other costs, such as trading fees, which are usually not covered in the published MERs.
- Investment advisors can deliver more value to their clients by focusing on the investment policies and strategies that ought to be followed. Investment selection ought to be last on the to do list.
- Focus on Exchange Traded Funds (ETFs) and index funds for at least part of the portfolio holdings. Entire portfolios can be constructed with these vehicles.
- Trading activity within ETFs and index funds is kept to a minimum, usually when one company is removed and another is added.
- Management expense ratios (MERs) paid on ETFs and index funds are lower than those on traditional mutual funds.
- MERs paid directly from a mutual fund are not deductible for tax purposes by investors.
- Identify funds that have low turnover of securities when selecting traditional mutual funds.
- Make sure that the fund's investment objectives match the personal objectives. Also, monitor whether the fund's investment objectives change.
- Be vigilant of mutual funds that replace their portfolio managers, sometimes suddenly.
- Keep tabs on major and/or sudden shifts in performance, both up and down.
- Consider the costs of exiting, but selling ought to be for the right reasons.
- Keep tabs on the overlap of securities among the funds owned. Often, the holdings are very similar.
“Staying ahead of the of the information overload is no easy task,” suggests Mastracci, “For the professionals too.”
“Visiting the databases produces a selection list exceeding 5,700 mutual funds,” notes Mastracci, “That’s just for Canada!”
“A typical prospectus can easily range from 30 to 300 pages of cheerful reading,” states Mastracci, “Yes indeed, that is the simplified version.”
“Maintaining perspective vis-à-vis one’s goals is all important,” concludes Mastracci, “Being aware of the investment alternatives is a good start.”
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