Help mature clients in Canada understand how to start investing in mutual funds with practical strategies, risk insights, and advisor-tested guidance.
Starting to invest in mutual funds can be confusing, especially for senior or mature investors. There’s a lot to learn, and it’s easy to feel unsure. Even with the right facts, older clients can sometimes decide based on myths or outdated practices. As a financial advisor, it’s part of your job to cater to investors of all ages and steer them toward the right path.
In this article, Wealth Professional Canada will talk about how to start investing in mutual funds. We’ll discuss what mutual funds are as well as the various types. We’ll also talk about factors to consider when starting to invest in mutual funds and what to avoid.
Can senior citizens invest in mutual funds?
Short answer: yes. Senior citizens can and should be encouraged to learn how to start investing in mutual funds. In fact, mutual funds can be a good option for older investors who want to grow or preserve their savings during retirement.
Mutual funds offer diversification. This means that the money is spread across different investments like stocks, bonds, or a mix of both. This helps reduce the risk compared to investing in a single stock.
Mutual funds are also managed by professionals. As such, this type of investment is easier (if not ideal) for seniors since they don’t need to fuss about having to follow the market closely.
It’s vital for investors, whether young or mature, to choose the right type of mutual fund based on their financial goals and comfort with risk. Seniors who want steady income or want to protect their savings might consider lower-risk funds. These include bond funds, dividend-paying equity funds, or balanced funds with a conservative mix.
If you have mature clients with similar objectives, advise them to avoid high-risk or aggressive funds, unless they have everything covered for their daily expenses and have the extra funds.
Why mutual funds can be ideal for senior investors
The answer is flexibility. Depending on your senior clients’ needs, mutual funds can be held inside registered accounts like:
- RRIFs (Registered Retirement Income Funds)
- TFSAs (Tax-Free Savings Accounts)
- non-registered accounts
Some mutual funds even offer monthly income options. Such can be useful for retirees who need regular payments. It’s also wise for senior investors to think about liquidity. While mutual funds are generally easy to redeem, some might have fees or penalties for early withdrawals.
All in all, mature investors who want to learn how to start investing in mutual funds should first consult a financial advisor. So, if a senior client approaches you for your service, start by assessing their financial profile and estate plans. Ask about health expenses, if any, and help them see if investing in mutual funds fits their retirement lifestyle while managing risk.
What are mutual funds?
Mutual funds are investment products that pool money from many investors to buy a mix of assets. These assets can include stocks, bonds, cash, or a combination of them. Each investor owns units of the mutual fund. These units represent a share of the fund’s total holdings.
Mutual funds are managed by professional portfolio managers. These managers decide which assets to buy, hold or sell, based on the fund’s goal. For example, a growth fund might focus on stocks that have strong potential to increase in value. An income fund might invest in bonds that pay regular interest.
Mutual funds also come with fees, such as the Management Expense Ratio (MER). Financial advisors must be sure that their clients who want to build their portfolios are aware of these costs.
To learn more about how to start investing in mutual funds, watch this video:
Want to recommend smart choices to your clients who are interested in this type of investment? Check out the top 10 performing mutual funds in Canada in this article.
Types of mutual funds
Mutual funds come in different types. The two main types are:
- closed-end funds
- open-ended funds
Let's discuss them both below:
1. Closed-end funds
This type of mutual fund offers a fixed number of shares. Those shares will be sold to the public through an initial public offering (IPO). After that, the shares trade on the stock market. Investors buy and sell them like regular stocks.
The price of these shares changes based on supply and demand. Because of this, they often trade at a discount compared to the actual value of the fund’s assets.
2. Open-ended funds
This is the most common type. They do not have a fixed number of shares. Let’s put it this way: if your clients put money into the fund, the fund creates new shares. When your clients want to sell, the fund buys back the shares. The price is based on the current value of the fund’s assets. Most mutual funds in Canada are open-ended.
Financial advisors should consider the type and fee structure when advising their clients on selecting mutual funds.
Factors to consider when starting to invest in mutual funds
Choosing the right mutual fund is an essential part of building a portfolio for your senior clients. As a financial advisor, you want to make sure that the mutual fund that your clients pick matches their wealth-building plans and risk appetite.
Advise your mature clients to watch out for these factors when starting to invest in mutual funds:
1. Investment goal
When one wants to learn how to start investing mutual funds, they should start by looking at what the mutual fund is trying to achieve. The mutual fund’s goal should match your clients’ needs.
For example, a younger client saving for retirement might benefit from a growth-focused equity fund. However, when dealing with senior and mature investors, expect that they might prefer a fund that offers a stable passive income with low risk.
2. Risk level
Every fund comes with some level of risk. Equity funds tend to have more ups and downs. Fixed income and money market funds are usually more stable. The right risk level depends on the investor’s age, timeline, and comfort with market changes.
Understanding how much risk your clients are willing to take will help narrow the mutual fund options.
3. Fees and costs
Mutual funds charge fees for management and operations. These can affect your client’s returns over time. Lower fees can lead to better results, especially for long-term investors. No-load funds, which don’t charge sales fees, might be a better option for some clients.
Your clients should also review the fund’s Management Expense Ratio (MER) and any sales charges. To understand how MER works, watch this video:
4. Fund manager’s track record
The main purpose of the person managing the fund is to allocate assets and produce returns for the investors. In turn, your clients must check how long the fund manager has been in charge and assess the performance of their past decisions.
A fund manager with a positive track record has a huge impact on the success of your clients’ mutual fund investment.
5. Diversification
A good mutual fund should be spread across different assets. This helps reduce risk, since the poor performance of one investment won’t hurt the whole fund.
Tell your clients to make sure that their chosen mutual fund will add something new to their portfolio. It defeats the purpose of diversification if it’s just the same as what they already have.
6. Tax impact
Some funds might lead to tax consequences, such as capital gains. If your clients are investing through a taxable account, think about how the mutual fund might affect their tax bill. You might want to suggest that they use more tax-efficient funds.
They could also place them in registered accounts like a tax-free savings account (TFSA) to reduce tax exposure. Watch this for more information on investing in mutual funds:
If you're working as a financial advisor or aspiring to be one, even knowing about cryptocurrency as an investment can be an advantage.
Why invest in mutual funds?
There are a lot of investors who find that mutual funds align with their financial goals. One reason is that mutual funds are well-suited for long-term investing. This encourages people to stay invested even when markets are unstable.
Investors also benefit from having their assets managed by professionals. The option to automate contributions adds convenience and reduces stress. Other reasons why savvy investors choose mutual funds include:
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Mutual funds have low entry points. As such, it’s easy to start investing in smaller amounts
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Mutual funds offer built-in diversification, which helps reduce the risk of losses from any one company
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Mutual funds are available in registered accounts like RRIFs and TFSAs
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Mutual funds do not require constant monitoring. This makes it attractive to hands-off investors
Are ETFs better than mutual funds in Canada?
ETFs and mutual funds both offer access to diversified portfolios. Still, they suit different strategies. ETFs are better for investors who want lower fees, more control over trades, as well as tax efficiency. They trade like stocks and often follow an index.
On the other hand, mutual funds are managed by professionals and might work better for hands-off investors or those using retirement accounts where daily trading isn’t a priority.
Choosing between the two depends on your objectives and how involved you want to be in managing your investments. If you want lower fees and the flexibility to buy or sell during market hours, ETFs might be for you. But if you value convenience and professional oversight, mutual funds might make more sense.
No matter which one you pick, the best choice is the one that fits your strategy—not someone else’s. And whatever investment tool you choose, be patient when waiting for your portfolio to grow through profits, returns, or capital gains.
Read more about ETFs and mutual funds in this article.
How to start investing mutual funds: Set your expectations
Investing in mutual funds can be a great way for your clients to grow their money. However, it’s critical for them to set their expectations based on expert opinion. Their choice should also be backed by facts. Just because a fund did well in the past or has a star manager doesn’t mean it will keep performing that way. Factors like high fees and hidden biases can all lead to poor investment strategies.
It’s also worth thinking about one’s values and goals. The right choice really depends on your clients’ preferences and plans for their finances. Lastly, age can be a factor for investors when learning how to start investing in mutual funds. However, this shouldn’t hinder you from guiding clients of all ages toward financial literacy.
To read more about mutual funds and other types of investments, check out our Investor Resources page.
