|
|
|
|
TD Mutual Funds Mutual Fund BasicsAn introduction to mutual fund investingThis section provides you with an introduction to some of the most important fundamentals, strategies and management styles of mutual fund investing. To learn even more about mutual funds, visit our Mutual Fund Glossary and Mutual Fund FAQ. Once you're more familiar with mutual fund investing, find out about all the advantages you'll enjoy when you invest in TD Mutual Funds. Mutual Fund Fundamentals
Mutual Fund Strategies
Mutual Fund Management Styles
A mutual fund is an investment that pools money from many individuals and invests it according to the fund's stated objectives. Professional money managers make investment decisions on behalf of fund investors, buying and selling investments such as money market investments, bonds and stocks.
For the average investor, mutual funds offer a wide range of benefits. Some of the key benefits include: Diversification: Mutual funds are a convenient and affordable way of gaining access to a wide range of investments that would be very difficult and time-consuming to purchase and manage individually. Because mutual funds typically hold 50 to 100 different investments, they offer a degree of diversification that would be difficult to achieve on your own. Professional management: Actively managed mutual funds also give you the benefit of professional investment management. The investments are selected by experienced professionals who devote themselves exclusively to tracking the markets, analyzing investments and implementing a consistent investment strategy. Flexibility to meet your needs and goals: A wide range of mutual funds is available to help meet the needs of every type of investor, from conservative to very aggressive. Mutual funds can also help you meet a variety of investment goals, from establishing an emergency fund to saving for a vacation, a down payment on a home, retirement or education. To help you choose between different mutual funds, we recommend you speak with one of our Mutual Funds Representatives. They can help you select one or more mutual funds that can meet your personal investment needs while considering your tolerance for risk.
A general rule of investing is that the higher the potential return, the higher the risk. This is known as the "risk/return trade-off", and is illustrated in the chart below.  An investor with a lower risk tolerance, such as Investor A, would prefer to invest at a lower point on the risk/return line. Investor B, with a higher tolerance for risk, would invest at a higher point on the risk/return line in the pursuit of a higher potential return. In mutual fund investing, volatility (the degree to which a fund fluctuates in price) and return will depend on market trends, the individual investments held in the fund, and the investment strategy used by the manager. Generally, a fund that aims to achieve a high level of growth will be more volatile than one whose objective is to preserve capital. However, over the long term, a growth fund may earn a higher return than a conservative money market fund. The best way to understand the risk/return trade-off is to speak with one of our Mutual Funds Representatives. They will use innovative tools, such as our Wealth Allocation Model. to help you understand your investment objectives and your tolerance for risk. Once these have been determined, they can assist you in creating a portfolio that can help maximize your potential return within an acceptable level of risk.
The growth potential of your portfolio is determined to a great extent by the mix of different asset classes that you own, and secondarily by the specific investments that you hold within these different asset classes. The graph below illustrates this point. Portfolio A is composed entirely of bonds, and over time has experienced both low growth and low risk. Portfolio C by comparison is composed of both stocks and bonds. It has experienced higher growth and lower risk than Portfolio A. For this reason, it's important to consider the benefits of holding a mix of different asset classes that is appropriate for your investment objectives. Diversification across asset classes  We recommend that you work with a Mutual Funds Representative to ensure that your portfolio contains an asset mix that provides the maximum potential return within your acceptable level of risk. The TD Mutual Funds Wealth Allocation Model will help determine an asset mix that's right for you. With the help of a Mutual Funds Representative, you can then invest in a recommended portfolio of TD Mutual Funds or one of our TD Managed Portfolios through the TD Managed Assets Program (TD MAP). You'll benefit from a diversified portfolio that reflects your personal investment needs and objectives.
Diversification is one of the most important principles of successful investing. It is the financial equivalent of not putting all your eggs in one basket. You spread your risk by investing in several different investments, therefore reducing the impact of one poor performer in your portfolio. One of the most effective ways to diversify is to invest among the three main asset classes. Because investment markets tend to move independently of one another, positive performance in one asset class can help offset negative performance in another, thereby reducing volatility over the long term. For mutual fund investors, a diversified portfolio would include a combination of money market funds for safety; bond and mortgage funds for income; and equity mutual funds for long-term growth potential. Another important way to diversify your portfolio is by investing in different countries around the world. Often, certain areas of the global economy are performing better than others, and by spreading your investments throughout the world, you limit your risk, while at the same time increasing your long-term growth potential.
As the chart below indicates, Canada makes up about 4.2% of the total world market capitalization. That means if you limit your investments to Canada alone, you can miss out on many opportunities within global markets. Global Diversification  The 2005 Federal Budget removed the foreign content limit for registered plans. Customers with RSP's, pension plans or other registered accounts are no longer subject to 30% foreign content limit. This change means that customers can now exceed 30% in foreign exposure in their accounts without incurring a monthly 1% penalty. A Mutual Funds Representative can fully explain all your global investing options.
In all asset classes, returns can fluctuate extensively. As the chart below illustrates, even the value of a conservative investment such as a treasury bill can fluctuate. Over longer periods of time, however, returns tend to even out and stabilize. Staying invested over the long term reduces risk, while increasing the potential for higher returns. It's a matter of time 
Dollar-cost-averaging is a simple investment strategy that builds wealth while averaging out the cost of the units you purchase in a mutual fund. By investing a fixed amount at regular intervals, you automatically buy more units when prices are low and fewer units when prices are high. While this technique doesn't guarantee a profit or protect against a loss, as the chart below illustrates, it can result in a lower average unit cost over time. Dollar-Cost-Averaging Let's say you have $60 a month to invest in a particular fund that fluctuates in price. January Price = $5.00 - You Buy - 12 units In January, your $60 investment buys you 12 units. In February, the price of the units declines to $3, which allows you to purchase 20 units. Finally, in March, the price rises to $6, and you buy 10 units. In three months, you will have invested $180 and purchased 42 units. Over the three month period, your average cost per unit would be just $4.29. To help you take advantage of dollar-cost-averaging, TD Mutual Funds offers a Pre-Authorized Purchase Plan. This Plan is a convenient and affordable way to invest set amounts at regular intervals in TD Mutual Funds or to add to a TD Managed Assets Program Portfolio. You can start with as little as $25 per fund per month, and this amount can be automatically transferred to your account on a weekly, biweekly, semi-monthly, monthly, quarterly, semi-annual or annual basis. Benefits of contributing regularly 
It is generally accepted that there are a number of different ways for fund managers of mutual funds to pick stocks and achieve growth over the long term. Holding funds that have different management styles can help you diversify as well as add long-term growth potential to your portfolio. Three of the most common management styles available in mutual funds are value, growth and index investing.
Managers of value mutual funds invest in companies that they feel are trading below their estimated true (or intrinsic) value. Over time, these managers believe that the market will come to recognize the value of the business and the stock price will move up accordingly. Although there are exceptions, value funds tend to hold mid- and large-cap stocks in their portfolios.
Managers of growth mutual funds typically invest the majority of their fund's assets in growth stocks. These are stocks of companies that are expected to grow at an above-average rate. This growth may be in the form of earnings, cash flows, revenues or volumes. Growth funds usually experience more volatility than value funds, however, over the long term, they often provide the potential for higher returns. Unless otherwise specified in the prospectus, growth funds can invest in small-, mid- and large-cap stocks.
Managers of index funds emulate the performance of a specific financial market index, such as the S&P/TSX Composite Index, by holding the same securities as the index, or a representative sample, in the same proportions, within a mutual fund. Index funds provide investors with a high degree of diversification by reflecting the makeup of stock indexes that are typically composed of a cross section of many of the largest, strongest and best known companies in their geographic region. This management approach, referred to as "passive management," usually offers investors lower management fees. That's because by mirroring the holdings of a market index, there are minimal research costs, and these savings are passed on to the investor. Index funds can also offer tax efficiencies in non-registered portfolios.
|
 |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Privacy Policy | Internet Security | Legal | |
||
