|Investing in mutual funds involves risk. Here, we briefly outline these risks and how you can manage them|
What are the risks?
While everyone wants to make money when they invest, you could lose money too. This is known as risk. Like other investments, mutual funds involve some level of risk. The value of a fund's securities typically changes from day to day for many reasons, including changes in the economy, interest rates, and market and company news. That means the value of mutual fund units, other than cash equivalent funds, will typically change daily. When you sell your units of a fund, you could receive less money than you invested.
The amount of risk depends on the fund's investment objectives and the types of securities it invests in. A general rule of investing is that the higher the risk, the higher the potential for gains as well as losses.
Cash equivalent funds usually offer the least risk because they invest in highly liquid, short-term investments such as treasury bills. Their potential returns are tied to short-term interest rates.
Income funds invest in bonds and other fixed income investments. These funds typically have higher long-term returns than cash equivalent funds, but they carry more risk because their prices can change when interest rates change.
Equity funds expose investors to the highest level of risk because they invest in equity securities, such as common shares, whose prices can rise and fall significantly in a short period of time.
More information on the specific risks of each ScotiaFunds™ can be found in our Simplified Prospectuses.
How can I manage the risks?
While risk is an important factor to consider when you are choosing a mutual fund, you should also think about your investment goals and when you will need to withdraw your invested money. For example, if you are saving for a large purchase in the next year or two, you should invest in a fund with low risk. If you want your retirement savings to grow over the next 20 years, and you have at least a moderate risk tolerance, you should invest more of your portfolio in equity funds.
A carefully chosen mix of investments will help you build a portfolio that is suited to your investment goals, time frame, and risk comfort level.
If your investment goals, time frame or risk tolerance changes, you should notify your Scotia advisor and change your investment portfolio accordingly.