Sunday, 21 October 2012

Top Ten reasons not to have Canadian Mutual Funds in your RRSP

  1. Fox's Paradox:
    • I want my fund manager to make enormous profits trading in the stock markets
    • Any fund manager that actually can make enormous profits trading in the stock markets would spend her days making herself rich
    • Therefore no fund manager who can make enormous profits would work at a mutual fund
  2. There are no Index Funds that can match the Index
  3. The funds do not hold what they say they do. My Global Commodities market is invested 40.7% in Canadian Stocks and 39.1% in US Stocks. That's 79.8% in North American stocks. That's not Global
  4. On Jan 3rd of every year your fund loses 4.5% of its value – the cumulative drag of the MER (Management Expense Ratio) and the previous 12 months of inflation
  5. Holding US funds in your Canadian investment account incurs currency exchange fees:
    • When you buy the funds
    • When the fund pays dividends
    • When you sell the funds
    • You even pay exchange fees when you receive your annual distribution
  6. Holding a mutual fund in an RSP means that you cannot claim a loss on your taxes
  7. The highest performing mutual funds charge "loads". A front-end load is a fee to buy the fund; a back-end load is the fee to sell a fund
  8. The CDIC (Canada Deposit Insurance Corporation) does not cover mutual funds
  9. By definition mutual fund managers churn their holdings – they buy and sell every day, typically turning over 90% of the fund portfolio in a year. If a stock isn't worth buying and holding for 5 years, it's not worth buying and holding for three months'
  10. I'll leave the last words to Rob Carrick of Report on Business "Plenty of mutual funds are run by faceless nobodies who come and go with all the impact of a tree falling in a forest."
    ROB, Mar 17 2009

Disclaimer: This is not investment advice. This is the story of how I pick my stocks. I cannot recommend these stocks for you. My invitation is that you use this story as an inspiration to develop your own portfolio that meets your risk profile, the type of stocks you can understand, and that are recommended by professional writers and market analysts. I am an amateur investor. I enjoy the hobby, and invite you to enjoy it too.

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