slowly when first g into Gradual investment allows you to learn as you go DON’T BE spooked by today’ s low interest rates and end up jumping into mutual funds. But do be motivated at least to consider easing into these investments if you feel com- fortable with the risk. Many people coming to see me for financial advice these days ask _ about the attractive returns mutual — funds advertise. “TI have term deposits and GICs maturing, and really don’t want to . invest for 6% after getting 10 and 11%,” is a typical comment. “Should I put this money into ‘ mutual funds to earn closer to what | used to get?’ The background: A mutual fund allows you to invest.in a variety of instruments like Treasury bills, ‘ government bonds, corporate “bonds, mortgages and stocks — both Canadian and foreign. . Some funds have a special focus “like ‘energy stocks or smali com- ” panies. Some funds go for income, ‘growth ora balance between the two. ‘ The fund managers use the “money invested to buy various securities. So even a small investor nds up witha diversifi ed port- folio through owning a. portion of “thé fund. “OF course, the fund’ 's expenses must come from the investors’ ool of money. .. , There is invariably’ an annual «| “management fee (usually taken monthly) and’ often a front-end load (or commision) when you “buy and/or a rear end load when you sell. : Mast important: While term de- + posits and GICs ’are.covered. ' (within limits) by deposit in- surance, mutual funds have no “such guarantees. * return ‘with mutual funds, but you also risk losing money; your. return isn’t guaranteed: :’ Whether you inake or lose ; “money will. depend on how well your. fund manager and/or the -market as a whole performs. There are some exceptions. For - example, money market fund units “are generally valued at $10 and _ barring a ‘sharp i increase in interest ) DEMO UNITS ‘All brands 90 $1 warranty NEW MACHi iNE Sharp UX202 Fax Tel/Ans NEW MACHINE Canort B7G PLAIN PAPER fax DOLLARS AND SENSE rates, you shouldn’t lose money — although once again, there is no insurance to cover your invest- ment. Life insurance f unds (called i in- vestment or segregated funds) usually guarantee a minimum payback of 75% of your capital, ’ Most assurances like this, how- ever, are only as good as the com- "pany behind the guarantee. The strategy: If this is your first foray into mutual funds, tread slowly. Most financial institutions have in-house mutual funds. As a start, ask the place where you bank for . literature on the funds offered and talk to the fund specialist. You can also approach ' stockbrokers and companies that sell only mutual funds. Look for increased expertise and advice; beware any increased sales pressure. Study the prospectus for the fund(s) you might choose in your situation. Buy or borrow a reference like the current year’s Buyer’s Guide to Mutual Funds, by Gordon Pape. Also look at the surveys of fund performance in the financial press. If you own mutual funds, these surveys and accompanying arti- cles, which appear in at least two business papers around the middle of each month, should be required reading. Make sure your funds are always closer to the top than the bottom of the list. While past performance is no guarantee of future results, a year-by-year history can show how the fund did both in good times and bad. And remember, most mutual funds should be long-term in- vestments; plan to hold up to 10 years, to allow time for recovery in case the market falls. First-time mutual fund buyers should probably choose up to three or four funds and invest gradually —- perhaps on a regular monthly basis. This approach, called dollar- cost averaging, eliminates the risk of making a lump sum investment just before a drop in the market. Gradual investing also allows you to learn about owning and managing mutual funds without making a large financial commit- ment. You must feel comfortable and in contro! before you invest” larger amounts. If all your investments are in your RRSP, buying mutual funds can give you a long-term chance at higher growth than GICs. But if you have investments both inside and outside your RRSP, lean toward holding the interest-producing instruments.in the RRSP (where this income will be sheltered from tax) and have your growth and divi- dend-producing funds outside the RRSP (where you can benefit from the capital gains exemption and dividend tax credit). Mike Grenby is a North Shore-based columnist and in- dependent financial adviser who works with individuals; he will answer your questions as space allows — write to him c/o The North Shore News, 1139 Lons- dale, North Vancouver ¥7M 244, ON SALE NOW! 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