So which are better: mutual funds, exchange-traded funds, or individual securities? Proponents of exchange-traded funds will argue that the majority of mutual funds have underperformed their respective benchmarks and that you are better off with “ETFs.”
Mutual fund proponents, on the other hand, will point out that while not the majority; there are managers who have consistently outperformed their benchmarks.
Then there are those who prefer to actively manage their investments, but feel they can do so with lower fees through individual securities.
I could spend the next three weeks presenting the pros and cons of each, but in the end the argument is academic. It is like asking which car would win a race: a BMW, a Mercedes, or a Nissan. You can have an opinion. But really, it depends who is driving.
When it comes to investing, it also depends on the markets. For example: no matter what your preferred investment “vehicles” were in 2008, there is a pretty good chance they were down. And again, regardless of what they were, they have probably since recovered.
In my opinion, the bigger issue is not how they differ, but rather their similarities, as they all share one characteristic. They tend to follow the markets.
In a bull market, when things are going steadily up, that is a good thing. But in a sideways market, like the one we have been experiencing since early 2000, it can be frustrating.
As for which asset classes to invest in today: many analysts are optimistic that the stock market will perform well going forward. But at the same time, there are concerns related to the potential economic impact of government debt levels in the U.S. and Europe, geopolitical risks in the Middle East, and recent indications of inflation, and potentially rising interest rates, which in general does not help the bond market.
What is the answer? Diversification of course. But in my opinion you should be looking beyond the traditional asset classes of stocks, bonds, and cash equivalents, hopefully for investments with the potential to do well regardless of the economic situation.
Today I am going to present another option: hedge funds — funds that endeavor to make money regardless of what the market does.
Hedge funds may sound risky, but studies have shown that not necessarily to be the case.
A word of caution though: for starters it is important to choose the right hedge fund.
Also, it is important to understand that hedge funds are best used in the context of a diversified portfolio containing other asset classes as well.
Learn more at our upcoming presentation on hedge funds on July 10 at the Qualicum Beach Civic Centre.
To register call 250-594-1100, or e-mail paige.renouf@raymondjames.ca, or register online at www.jimgrant.ca.
Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). This article is for information only. Securities are offered through Raymond James Ltd., member Canadian Investor Protection Fund. Insurance and estate planning offered through Raymond James Financial Planning Ltd., not member Canadian Investor Protection Fund.
For more information feel free to call Jim at 250-594-1100, or e-mail at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca.
