4 min
Updated: Apr 9, 2022
When it comes to investing, it can be a challenge to keep all the different retirement options, government plans, and types of investments straight.
When it comes to investing, it can be a challenge to keep all the different retirement options, government plans, and types of investments straight. For example, plan “types”, such as RRSP or TFSA, differ from the actual investment products that can be held within an individual plan.
Here are some ABCs of investing that may help sort it all out…
PLAN TYPES
Although there are many other plan types, such as RESPS, RDSPS, LIFs, RRIFs, the plans noted above are the most popular ones for accumulating savings.
So, what kinds of investments can you hold in these plans?
INVESTMENT TYPES
These are funds that contain a basket or portfolio of stocks and bonds. They are assembled by a Portfolio Manager who makes the investment decisions in keeping with the fund’s investment mandate or goal. Mutual Funds charge fees as a percentage of their assets to cover their costs, typically referred to as management fees.
These are also funds that contain a basket or portfolio of stocks and bonds, similar to Mutual Funds. The difference is they have an insurance “wrapper” around them, which can guarantee a minimum value upon the “maturity” of the contract or the death of the annuitant (typically the investor). They also have certain estate planning features and benefits including the ability to bypass probate upon death, the need to name a beneficiary, and potential creditor protection. Segregated Funds charge an additional fee to mutual funds in order to cover the cost of the insurance.
An Exchange Traded Fund is like a Mutual Fund in that it is a basket of stocks and/or bonds. However, the fund itself is traded on an exchange, which allows for buying and selling throughout the trading day, similar to purchasing an individual stock. ETFs typically have lower management fees than Mutual or Segregated Funds, as they simply mirror a stock market index. We refer to this as passive investing, whereas a Portfolio Manager who creates their own basket of stocks and/or bonds is actively managing an investment. These passive “index” ETFs simply follow an overall stock market index, so if the market goes up, the fund goes up, but the market and your fund can also go down. Recently, ETFs that are ‘actively’ managed have also been introduced in the market, with higher management fees.
Stocks are individual securities of a particular company (also referred to as shares). Some investors prefer to pick their own stocks to invest in rather than have a Portfolio Manager of a Mutual or Segregated Fund choose what makes up their fund. These “do-it-yourself” investors usually work through a brokerage firm with an online account. There are trading costs to buy or sell these stocks on a per transaction basis, but there is typically no management fee associated with this type of investment.
These are companies that typically cater to investors with more than $100,000 to invest, and they act like a personal Portfolio Manager, directly interacting with the client on their individual investments. These firms often invest in additional asset classes over and above stocks and bonds, for example, real estate, mortgages, private debt, and other alternative investments to further diversify their clients’ portfolios. For these services, they charge a management fee on the investments that is typically lower on a percentage basis than that of Mutual or Segregated Funds.
These firms act similarly to the Investment Councillor or Portfolio Manager mentioned above, only they use an online platform where you sign up and manage your account. During online sign up, you answer a series of questions that help classify your risk tolerance and investment priorities. Based on that, your money is invested in one of a number of predetermined portfolios, frequently made up of ETFs, which can be tracked online, 24/7. Robo-Advisors typically charge competitive fees, often lower than Mutual or Segregated Funds. Unlike Investment Councillors or Portfolio Managers, they typically accommodate smaller account sizes.
Author: The Link Between