The Pros & Cons of Segregated Funds Vs. Mutual Funds

May 16, 2016 10:34 am Published by
What are some of the activities you’ll get up to this summer? From day to day tasks at home like watering the grass and driving the kids back and forth all over the city, to bigger events like packing up and heading out of town with the family, to finally knocking out that pointless dividing wall in your living room, summer is a great time to unwind and get on with the business of living.

Moment like these are prone to sudden sparks of reality. Have you ever caught yourself for a little self reflection?

“I’m taking care of my family, and I’m having a good time doing it.”

When our minds are nowhere near our jobs or our income, this is when we should truly feel safe in the choices we’ve made regarding our money. It’s nice not to be living from paycheque to paycheque these days, but it’s important to place your extra income in a place that will be beneficial when you need to make a withdrawal.

Want to make an investment that’s guaranteed to be there down the road?

 

Segregated Funds

Pro: Guaranteed Principal

Depending on your contract, segregated funds guarantee 75% – 100% of your principal investment until your maturity date. Some contracts will let you raise the guaranteed amount (and re-set your maturity date) if the value of your investment rises.

Pro or Con: Built-In Timeline

As with any investment product, segregated funds are built to accommodate individuals. A built-in timeline that guarantees the pay-day and amount might be a pro or a con depending on your perspective. Seg funds have a maturity that’s typically 15 years these days.

Con: Protection Fee

Segregated funds are a special product and they aren’t free – you pay for the guarantee built into your investment.

Pro: But It’s Protected!

Segregated funds were created to protect investments over a set period of time. It’s a great way for a family that’s just set down roots in a new home or a couple who sees retirement on the horizon. Seg funds let you plant an investment seed and let it grow without paying too much attention.

 

Seg Funds vs. Mutual Funds

Whereas mutual funds can fluctuate in value from week to week depending on the level of risk in your portfolio (a risk which is not protected or insured), segregated funds allow for investments with guarantees protecting their downside investment risk. 

Since most of us learned about personal finance for the first time by seeking an enlightened understanding of the cookie jar, let’s think of the relationship between mutual funds and segregated funds this way:

If a group of bakers and children have access to a cookie jar, the jar could potentially contain a bounty of fresh cookies. But if everyone knows it’s there and has access to the cookie jar, then those cookies could be removed to satisfy a mean case of snack attack.

However, with a segregated cookie jar, fresh new cookies can go in, but since the cookies are placed on a high shelf, they won’t be taken out until they’re ready. Sure, you can use a large stool and steal some early, but it’ll cost you.

Whether you’re ready to invest in mutual funds or segregated funds, it’s important to do what’s best for you and your future.

No matter what your favourite cookies are, we can help you choose. Give us a call!

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This post was written by Marco Faccone