A diverse portfolio is a robust portfolio. You can capitalize on the upward momentum of a bull market
while protecting your holdings from a bear. While we caution that mutual funds – Canadian mutual funds
in particular – are saddled with hefty fees, a few carefully chosen funds can diversify your investment
holdings.
When choosing a fund, it is important to educate yourself as much as possible:
- What is the management expense ratio (MER) for the fund? Management fees are disclosed in the fund's prospectus.
- What is the type of sales fees, known as a load, and the sales rate? With front load funds, the sales fee is deducted at the time of investment. Front loads are not that common, but when applicable, the rate can be 5%.
- Rear-load funds can apply a sales rate as high as 6 or 7% in the first year of holdings. Normally, the rate drops by 1% per year until it reaches zero. If you expect to hold funds for a short period of time, your investments will be subject to the sales fees.
- Ensure you take all fees into account when researching the fund.
- Not all mutual funds are RRSP-eligible.
Exchange traded funds, or ETFs, are a low-cost alternative to mutual funds. They combine
the transparency and strength of an index fund with the liquidity of a stock, and can be traded
right in your Questrade account.