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Discussion Starter #1
I am someone who is quite risk adverse. I'd like to be able to get over that though to grow my money a little bit more.

In the past, I've had GICs and high interest savings accounts and that was about it. I had certain reasons though, besides my aversion to risk, such as wanting my money readily available at certain times due to unknowns about where I'd be in life.

Now, I've opened a fairly conservative mutual fund. I have some money that has to be put into a TFSA or RRSP. It's not much, and I'm considering putting it into a fairly risky mutual fund.

Is this a good idea, or am I just setting myself up for further risk avoidance if it doesn't perform well?
 

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It's probably not a good idea to put money in a high-risk fund if you are risk adverse. Additionally, many mutual funds are not a good investment if they have high MERS (management expense ratios). We could probably give you a better answer if you specified the funds that you are considering.
 

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Discussion Starter #3
It's a RBC Global Resources Fund. I'm not thrilled with the high MER but the fund appealed to me for some reason. Currently, I don't think I really have enough money (or knowledge) to make many other types of investments worthwhile.

I have a 'voucher' so it has to be within RBC. I'm willing to top it up to meet a $500 minimum, but not more than that.
 

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What is the basis for your risk aversion?
Is it because you are approaching retirement?
Or have a fixed financial commitment coming up (such as kids going to college)?
Is it because you have never invested on your own before, and the whole thing simply overwhelms you?
Or it is purely an emotional thing?
I think it is important for you to objectively look at the reasons behind your risk aversion.

That said, it is hard to say whether the fund that you have selected is appropriate for you or not.
Is this the only equity investment you have?
What % of your portfolio is in this fund?

The fees are fairly high at 2.23%
The sector is highly volatile subject to a variety of geo-political and market risk factors.
A lot of the top holdings are quite volatile within their sub-group as well.

If there is no pressing reason for your risk aversion (such as approaching retirement, need to buy a home, etc,) AND this is the only "risky" investment you have, then you could stay with it and enjoy the ride.
 

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Discussion Starter #5
My aversion is pretty much all emotional. I'm in my late 20s, trying to finish off grad school. I have no income currently, but have a decent amount saved and my husband has a good job for being a new grad. We'll probably buy a house in the next few years, but this money is only a small amount and if I lost it all it wouldn't really change anything.

I'm just debating this one as it's out of character for me. I'm trying to think of this as play money (with the potential for a nice bonus) as the majority of it is in the form of a voucher. I'm feeling 50/50 about going with this vs. going with a fund that would be more comparable to my other investments. I have a meeting in a few days and I feel that if I do want to go with the risk I need to have my mind made up going in, as it's going to be the opposite of what will be recommended after going through the bank's questionaire tool. My husband was a little shocked when I said I was thinking about the resource fund, but he thinks it would be good for me to get out of my super conservative mentality.
 

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First, there's nothing wrong with having a low risk tolerance. Understanding one's own temperament is an important part of investing.

Second, you said you were low risk, not NO risk. Subtle, but significant distinction. It sounds like you have a decent amount saved up and in a conservative mutual fund already, and this voucher isn't a significant amount. So spending it on something high risk isn't even necessarily out of character since the majority of your money is already in safer stuff.

Having said that much, I'm not suggesting you just go blow it on the first high-risk fund you can find. You say it appealed to you for some reason, but what was that reason?
 

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Koala, why not invest in a low MER equity index fund, e.g.

- for Canada, one that tracks the TSX
- for US, the S&P 500 index
- for developed markets, the MSCI EAFE index

I am guessing that you should be able to get these with 1% MER or less.

You will need an asset allocation. Why not put 10, 20 or 30% of your portfolio in one or more of the above, leaving the other 70 to 90% in GICs and bonds? Don't think of this $500 as 'throwaway' money, or it will be gone. Do the best you can to make a good investment in a stock fund.

BTW, I think 10% equities is safer than 0%. With GICs you may be guaranteed to get your money back and more, but there is no guarantee about what that money will buy. GICs aren't 'safe', they simply have risks that are different from other asset classes. A lot depends on when the money will be spent. Emphasize GICs for time frames <5 years; increase equities for time frames >10 years.
 

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Are you interested in this market?

Putting small amounts into the market will help your study's. Don't worry about mer's and cost.
 

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http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=66164&cid=RBC Global Asset Management Inc.

Some highlights as I see them:

Very high volatility
$10,000 invested in 2007 worth $10,299 now=questionable risk/reward ratio
3 year return in first quartile=good
Much of the return attributed to a single holding=Trilogy Energy (not good)

In my diversified portfolio of mainly ETF's I have an 5 percent allocation to the RBC Global Precious Metals Fund which also has a high volatility but $10,000 invested five years ago would be worth $16,976 which I consider to be a better risk/reward history. However, precious metals are very volatile and can suddenly drop like an elevator and not even touch the sides on the way down!!!

http://funds.rbcgam.com/pdf/fund-pages/monthly/rbf1038_e.pdf

Past performance is no guarantee of future results. Do your own due diligence before investing in any product.
 

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I am someone who is quite risk adverse. I'd like to be able to get over that though to grow my money a little bit more......
Is this a good idea, or am I just setting myself up for further risk avoidance if it doesn't perform well?
I think you're setting yourself up for further risk avoidance if it doesn't perform well.

It may be an interesting exercise to see how the percent gains actually figure into the overall picture. This is how I think when choosing my allocation (influenced by Jim Otar):

Example :
a) Invest $200 per month for next 60 months into XIC to track the Canadian Index, and think about the various possibilities at the end of the term:
Total value if held in cash: $12,000
Total value if market is unlucky (-2%): $11,760
Total value if market is average (+10%): $13,200
Total value if lucky (+20%): $14,400

b) Invest the $200 month for fiver years into same into the junior gold miner index (GDXJ) and recalculate the possibilities:
Total value if held in cash: $12,000
Total value if market is unlucky (-60%): $4,800
Total value if market is average (+10%): $13,200
Total value if lucky (+100%): $24,000
(these are just estimates)

The interesting fact is that in the lucky portfolio, your investment discipline to simply save and sock money away accounts for anywhere from 50-85% of the portfolio value in the end.

I'd then try a 90/10, 50/50, and 0/100 with cash/stock index and recalibrate.
Play with sample portfolios in excel and see what you can come up with.

I would also research the "efficient frontier" and learn about how you can achieve the same target without taking on too much risk.

If you are risk adverse like me, 75/25 cash/equity allocation is probably suitable to start, and dollar cost average in so you don't scare yourself. I hate to lose money, but have found a way to own some volatile investments like silver, gold miners etc. but temper them with enough cash/insurance products etc. to minimize losses in a bad year, and never come out net-negative.
 

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My aversion is pretty much all emotional. I'm in my late 20s, trying to finish off grad school. I have no income currently, but have a decent amount saved and my husband has a good job for being a new grad. We'll probably buy a house in the next few years, but this money is only a small amount and if I lost it all it wouldn't really change anything.
I think your risk aversion is a bit over-done for your age :). If you are in your late 50's it might be reasonable to be risk averse like that, but not now. Keep in mind that if you don't do anything with your money (just save them) the money will be eaten away by inflation. I would be more worried about that ;).
 

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I think your risk aversion is a bit over-done for your age :). If you are in your late 50's it might be reasonable to be risk averse like that, but not now. Keep in mind that if you don't do anything with your money (just save them) the money will be eaten away by inflation. I would be more worried about that ;).
I wouldn't put too much faith in equities as an inflation hedge, they can be just as bad or worse than cash (check the markets vs. cash since 2008), or GICs vs. Nasdaq since 2000.

We're lucky in Canada (assuming your equities are all in Canadian funds) to have energy/materials to counter inflation if you hold long enough, but I would most stocks seem to be terrible inflation hedges.
 

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Consider the model portfolios at www.canadiancouchpotato.com and pick one that you like and set up a discount brokerage account and just buy and hold 'forever' aside from periodic rebalancing when your initial target asset allocation gets out of whack.

Or, set up a portfolio of 15 or so dividend paying stocks with a history of increasing those dividends over time.

Keep your trading fees to a minimum.

Oh, and keep in mind the importance of diversification and never put all of your eggs in one basket.

Let me know in 50 years how it turned out for you.
 

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Discussion Starter #14
Thanks everyone! Having a sounding board has helped and I'm feeling more comfortable with this fund.

I like this fund because there is some history to it. I like the general trend, and to me it doesn't appear to be at a peak and I think it has potential to pick up. In general, I'm not too familiar with markets, but I have at least a little knowledge for resources. I'm not just going with the riskiest one I could find, I checked out quite a few but this was the only one that stood out.

Right now, I'm not too comfortable with the TSX or other general market (especially the US). For the long-term that might be fine, but I would like something shorter term if it works out well. When things stabilize a bit more, I have an income, and more knowledge I might consider setting up a couch potato portfolio.

If it does well, I can pull out some cash. If it drops I might consider investing a little bit more. I'll have to double check on a few things first, and if something doesn't check out to be what I thought then I can go with something more conservative.
 

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By the time this market is happy and stable all the money will have been made.

I will be selling to all the stupid money showing up in droves. It's what market timers live for.
 

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RBC Global Resources is inherently riskier (or at least more volatile) than a broad-market fund precisely because it concentrates on only one or 2 market sectors. (Prospectus claims it includes Energy, Materials, Industrial, & Utilities, but nearly 80% of the holdings are in Energy & Materials) These are quite cyclical, depending largely on the state of economy in manufacturing nations.

Any fund using S&P/TSX as its benchmark wouid give you plenty of exposure to these sectors.

It has an MER of 2.27.
 

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If there is a worldwide recession, resource stocks will not do well!! It is really a play on how the asian and emerging market economies will do going forward because, if there is to be growth, that will likely be where it will come from and not from the first world, industrialized countries whose economies will, if they grow at all, will likely grow at an anemic rate. You will be counting on growth and demand for resources from the emerging economies.
 

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I wouldn't put too much faith in equities as an inflation hedge, they can be just as bad or worse than cash (check the markets vs. cash since 2008), or GICs vs. Nasdaq since 2000.

We're lucky in Canada (assuming your equities are all in Canadian funds) to have energy/materials to counter inflation if you hold long enough, but I would most stocks seem to be terrible inflation hedges.
I didn't say that buying ANY equities will save your money from inflation. I own only individual Canadian stocks, mostly in the energy/resource sectors.
 

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I wouldn't put too much faith in equities as an inflation hedge, they can be just as bad or worse than cash (check the markets vs. cash since 2008), or GICs vs. Nasdaq since 2000.
Early 2008 or late 2008?

I think in the long run, stocks are an inflation hedge. If the currency debases, you demand more of it for your product.

hboy43
 

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Discussion Starter #20
I got it all set up today. Even better, I didn't have to use the voucher as a lump sum. I feel much better being able to buy small amounts throughout the year rather than one larger chunk at once.

I'll let you know how I feel about this decision once I get some results! I think I liked it enough that if it does really well before I buy a house and I didn't get it I would have been annoyed with myself.
 
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