According to a widely reported study released by a Canadian investment bank earlier this year, Canadians are sitting on $75 billion in excess savings “Cash”. That’s a lot of money earning interest at today’s low rates.
Fund managers even have a name for this phenomenon. They call it “cash drag” — too much cash can literally drag down performance over the long term.
Balance cash with growth
How much cash is too much depends on your specific goals and your time horizon. For example, money you have set aside for household expenses and emergencies is fine in a money market fund, where you can access it quickly.
But the longer you can stay invested, the more time you have to ride out the temporary ups and downs of the market and benefit from the growth potential that equity funds can provide.
Built-in risk management
One of the great things about mutual funds is how they’re designed to help mitigate risk.
• Diversification. Mutual funds offer a world of choice across different market sectors and industries, and every fund contains a diversified mix of professionally selected investments.
Regular investing. With the low minimum purchase amount for many funds, it’s easy to invest small amounts on a regular basis. You can even set up a pre-authorized purchase plan and make market fluctuations work for you: You automatically buy more fund units when prices are low and fewer when prices are high.
Larry Kleinmintz, R.H.U., T.O.T., M.D.R.T.
This newsletter is sponsored in part by Dynamic Funds. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performances may not be repeated. Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P.
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