Investors often use mutual funds to fill out target asset allocations and create well-diversified investment portfolios. In this introduction to mutual funds, we cover the quantity and asset size of available funds. Also, the variety of asset classes, subclasses, and specialty areas you can invest in using mutual funds.
All that and more in this episode on the Wilson Wealth Management YouTube channel.
“How large is the mutual fund business?”
It is extremely large, both in number of funds and assets.
We look at the number of mutual fund and assets under management. In Canada, the US, and the world.
How the mutual fund industry has grown over the years. As investors shift from investing in individual, non-diversified investments into better diversified investment products. As increased competition has continued to reduce product costs. And as investor knowledge has improved over time, resulting in the demand for more customized offerings.
“What are some of the asset classes that I can access with mutual funds?”
Investors can invest in every possible asset class and subclass. Based on your overall investment strategy, shorter term tactics, and to enhance diversification in your base portfolio.
We discuss some of the subclasses and ideas on how to assess them for your portfolio.
Common equity asset subclasses include: market capitalization; growth versus value investing; domestic versus international; developed versus developing markets; hedged versus non-hedged investments; industry sectors.
Perhaps your focus is on quantified data and ratio analysis, such as: price-to-book; price-to-earnings; dividend yield.
For fixed income: government versus corporate; quality; geography; foreign currency versus base; term to maturity; preferred shares versus bonds.
In Episode 26: Fixed Income Allocation, we cover key fixed income investment considerations.
“How can I find the better funds when there are so many available to buy?
We discuss fund ratings and rankings as one tool to compare performance between mutual funds in an investment category.
There are a variety of analyst rating systems. We use Morningstar as an example in this video.
“What other considerations may arise with mutual funds?”
We discuss hedging versus foreign currency exposure. Or investing internationally, at all. Most Canadian investors have a substantial home country bias in their equity portfolios.
Perhaps you prefer a balanced mutual fund, which may match your target asset allocation. Or a target date fund that takes a balanced approach, but rebalances over time until its (and presumably your own) retirement date. So you get everything all in one investment product. Which improves simplicity in your investment management.
Maybe you want alternative asset classes or niche sectors. Private equity, commodities, collectibles, real estate. Or specialty areas such as Environment, Social, Governance (ESG) investments. A hot investment sector currently.
For more on fund basics, please refer to “Mutual Fund Introduction” and “Mutual Fund Categories”. We will delve much deeper into this investment product over the next few episodes.
