Personal Finance

# Mutual funds vs GIC

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• Jan 22nd, 2014 12:58 am
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[OP]
Sr. Member
Jan 19, 2009
893 posts

## Mutual funds vs GIC

can someone see what I am doing wrong, lack of sleep and a bad cold isn`t making me think properly..

Lets say I have \$10000 to invest and don`t need the money for 10 years, I am deciding to go with either GIC or mutual funds. Lets say I can get a 10 yr GIC for 3% a year.

So my investment will grow to 10000(1.03)^10 = \$13439.16 which means Rate of return is (13439.16-10000/10000) = 34% over 10 years....

Now correct me if I am wrong but mutual fund performance is quote in Rate of return as well?

Lets take a look at CIBC managed funds for example, their 10 year rate of return is being quoted as 3.4%-9.5% depending on conservative - aggressive portfolio...

What am I doing wrong?
13 replies
Deal Expert
Mar 25, 2005
21312 posts
enter wrote:
Jan 20th, 2014 10:06 pm
can someone see what I am doing wrong, lack of sleep and a bad cold isn`t making me think properly..

Lets say I have \$10000 to invest and don`t need the money for 10 years, I am deciding to go with either GIC or mutual funds. Lets say I can get a 10 yr GIC for 3% a year.

So my investment will grow to 10000(1.03)^10 = \$13439.16 which means Rate of return is (13439.16-10000/10000) = 34% over 10 years....

Now correct me if I am wrong but mutual fund performance is quote in Rate of return as well?

Lets take a look at CIBC managed funds for example, their 10 year rate of return is being quoted as 3.4%-9.5% depending on conservative - aggressive portfolio...

What am I doing wrong?
Annualized?
[OP]
Sr. Member
Jan 19, 2009
893 posts
so when it says 10 yr 4.5%....that is saying the average return annual is 4.5%?
Deal Expert
Mar 25, 2005
21312 posts
enter wrote:
Jan 20th, 2014 11:27 pm
so when it says 10 yr 4.5%....that is saying the average return annual is 4.5%?
That would sound much more accurate. Without seeing the fund itself, that would be my assumption.
Newbie
Sep 13, 2012
44 posts
Edmonton
enter wrote:
Jan 21st, 2014 12:02 am
https://www.cibc.com/ca/rates/managed-p ... +Portfolio

breaks it down from months to up to 10 years...how would you interpret it? it says its rate of return....
From the fine print...
* Rates of Return: For periods greater than one year, the indicated rates of return are the average annual compound total returns as of the date indicated including changes in unit value and the reinvestment of all distributions and do not take into account sales, redemption, distribution or other optional charges or income taxes payable by any unitholder that would have reduced returns.
Deal Expert
Mar 25, 2005
21312 posts
enter wrote:
Jan 21st, 2014 12:02 am
https://www.cibc.com/ca/rates/managed-p ... +Portfolio

breaks it down from months to up to 10 years...how would you interpret it? it says its rate of return....
Nearly all MF are stated using an average annual total return. Its just a time weighted percentage.
Deal Expert
Nov 2, 2003
15537 posts
GTA
unless you do TD efunds which are less than 1% MER
Banned
Nov 27, 2006
2200 posts
Toronto
Allen32 wrote:
Jan 21st, 2014 8:07 pm
Correct. That would be average annualized return without expenses and other charges... So hypothetically: 4.5% annualized minus 2.5% for fees & expenses = ~2%

So be really careful when you select your mutual fund for the expenses because that comes off silently in the back-end. This is usually not disclosed information in the numbers published. Not that I am making a recommendation but take a look at the Mawer Balanced as they have good MER's and good year returns in comparison to the big bank offerings.

In your original question your asking about 34.39% gain over 10 years (compounded annually) so that would be 3.439% annualized (34.39%/10 = 3.439%) resultant return.
all returns on fund profiles ARE NET returns!! that means after MERs.
Deal Expert
Nov 2, 2003
15537 posts
GTA
for 10 years, i wouldn't do GIC... i'd be looking at stocks or some sort of index fund.
Deal Fanatic
Jul 1, 2007
8263 posts
Allen32 wrote:
Jan 21st, 2014 8:07 pm
Correct. That would be average annualized return without expenses and other charges... So hypothetically: 4.5% annualized minus 2.5% for fees & expenses = ~2%

So be really careful when you select your mutual fund for the expenses because that comes off silently in the back-end. This is usually not disclosed information in the numbers published. Not that I am making a recommendation but take a look at the Mawer Balanced as they have good MER's and good year returns in comparison to the big bank offerings.

In your original question your asking about 34.39% gain over 10 years (compounded annually) so that would be 3.439% annualized (34.39%/10 = 3.439%) resultant return.
Duplicating sirex's post, but I just want to reiterate how wrong this post is. Stated fund returns are always net of fees. It's a common misconception that the fee comes off afterward.
Money Smarts Blog wrote:
Nov 29th, 2010 11:18 am
I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Sr. Member
Mar 13, 2012
858 posts
Planet Earth
Thalo wrote:
Jan 21st, 2014 9:10 pm
Duplicating sirex's post, but I just want to reiterate how wrong this post is. Stated fund returns are always net of fees. It's a common misconception that the fee comes off afterward.
Disagree that is always the case for published returns so I deleted the post I made to keep the peace.
If at first you don't succeed, destroy all evidence that you even tried.
Sr. Member
Nov 28, 2010
979 posts
Toronto
I don't want start a flame war about MERs and MF vs. ETF, but I personally slowly start liking MFs as the give me decent return. In my case it is better than couchpotato ETF approach, which I also have been trying.
I do realize I pay extra 1-2% in MERs, but I am ok with it (yeah, call me stupid if you wish).
Deal Fanatic
Jul 1, 2007
8263 posts