If you’re meeting with an advisor for the first time, a lot of strange vocabulary can be thrown at you. Government Bonds, ETFs, Segregated Funds, GICs, and Mutual Funds are just the beginning. It can be overwhelming! Let's break down two of these commonly used investment vehicles to better understand which might meet your financial needs best; Segregated Funds or Mutual Funds.
Advocis, the Financial Advisors Association of Canada, explains very clearly in their Financial Topics the difference between Segregated Funds and Mutual Funds. In its most basic form, Segregated Funds are an investment with an added insurance policy protecting it. These insured guarantees are generally between 75% to 100% protection of the principal on both death and maturity. If you invest $150,000 into a given Segregated Fund and the market performs well, you keep the principal and the market gains. If the market tanks and the value dips below your initial investment of $150,000, your principal is still protected based on the guarantees you choose. This feature protects your investment from downhill markets and provides a safety net for your money. Historically, these investments have been much more conservative than the stock market, but they have since branched out to include a more varied series of managed funds to mirror the wide array of different mutual funds. So which is best for you?
Each Segregated Fund and Mutual Fund may be better than each other in different circumstances, so it will always depend on personal factors and investment styles. Empire Life provides a very clear breakdown of the key differences between the two products. While segregated funds offer increased protection, they can come at a higher management cost depending on how much protection or which features you choose. Mutual funds, on the other hand, do not provide such guarantees but can be cheaper to manage. Empire Life suggests that if you're nearing retirement or have a low-risk tolerance and appreciate the guarantees, Segregated Funds might be best for you. If you want a wider array of fund investment choices and don’t need the guarantees, Mutual Funds may be better for you. As always, each of these have different tax and estate planning implications, so it is always recommended to contact an advisor to get the best advice personally tailored for your financial future.
Now that you know a little more about Segregated Funds and Mutual Funds, contact an advisor today to speak with them to receive the advice you need for your future to invest with a personal plan.
Lifeplan Financial is a locally owned Managing General Agency (MGA) in Victoria and we work hard to give advisors the tools they need to succeed across all of British Columbia. We give our advisors the independence they need with the support they deserve. “Because Your Success… is Our Success.”