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5 big benefits of mutual funds

July 15,2021

Author: Martha Harbell

Saving your money means putting aside cash for things like an emergency fund or a big purchase. It’s great if you need to access your money anytime, but interest is generally low, so your money doesn’t grow much. Investing, buying, and holding assets that earn compound interest, gives you a better return on your money and makes it easier to grow your funds and save for the long-term.

Investing in mutual funds is a great way to potentially earn higher returns on your savings and reach your goals faster. With a mutual fund, investors pool their money together to afford a diverse collection of investments like stocks, bonds, and other funds. The fund is professionally managed, so you don’t have to worry about buying and selling individual investments to maximize your investment.

Here are five great benefits of investing in mutual funds.

1. Potential for higher returns

Mutual funds can potentially offer higher returns than savings accounts or Guaranteed Investment Certificates (GICs), especially when the investments they hold perform well. With GICs, your returns are based on a fixed interest rate. That rate is guaranteed, giving you some built-in safety. With mutual funds, you can earn money based on a combination of the dividends, interest, and capital appreciation of a wide array of assets in the fund. Mutual funds don't have fixed rates of return or principal guarantees, so an investor’s return over the life of their investment will vary more. This means that when assets in the fund make gains or increase in value you could benefit from a bigger return. Plus, your growth is reinvested back into the fund.

Tip: Earn even faster by setting up regular automatic payments to the fund.

What is a pre-authorized contribution (PAC) plan?

2. Professional management

Step 1: Choose a mutual fund that fits your goals. Step 2: The mutual fund’s manager does all the work.

This is what makes investing in mutual funds so simple. Expert, professional management means that you don’t have to worry about buying and selling the fund’s assets and monitoring the market to make money on your investment. This is also why there are fees built into the cost of mutual funds - to pay for their management.

3. More affordable

Pooling your money with others helps you afford a wider variety of investments. Making money on the stock market is a lot more accessible this way, and you don’t need to invest a lot of money to get started.

In fact, at motusbank1 you can get started with just $500 initially or $25 per month.

4. Diversity, three ways

Diversify your portfolio: Mutual funds returns are not guaranteed, but they may offer higher rewards. This makes them a great balance to guaranteed, lower-return, investments like GICs. A balanced portfolio is key to long-term saving.

Diverse options: There are many different types of mutual fund portfolios, so it’s easy to find one that aligns with your investment goals. You can also look at funds that align with your personal values, like Socially Responsible Investing (SRI) mutual funds.

Diverse assets: Mutual funds hold a range of different stocks, which helps balance risk associated with an individual asset. For example, if one stock performs poorly, your loss will be limited because other, better performing, assets can help balance it out.

5. Easier access to your money

Compared to fixed-term investments, like GICs, mutual funds are easier to access. They’re a long-term investment, but if you really need to access your money, you can ask for a withdrawal. Sometimes taking your money out can be more complicated - if you’re holding mutual funds in a registered account like an RRSP, for example.

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1Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise stated, mutual fund securities and cash balances are not insured nor guaranteed, their values change frequently, and past performance may not be repeated. Credential Securities is a registered mark owned by Aviso Wealth Inc.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds.