Segregated Funds 101: Segregated Funds vs. Mutual Funds

Investing your money always comes with a sense of worry no matter how experienced you are. If you have no experience, that worry gets exponentially greater. A great way to ease the anxiety over investing is to gain a deeper understanding of the different types of investments. Right now, segregated funds are growing in popularity thanks to their many benefits, but some consumers find themselves wondering what are the difference between segregated funds and mutual funds? Here we undertake to explain the differences so that you can go forth into the “investment sunset” with your head held high.

What are segregated funds and mutual funds? Segregated funds are investments held with an insurance contract, kept entirely separate from the assets of the insurance company. A mutual fund is an investment that a group of people pool money into, hiring a manager who invests the money in various stocks, bonds or other securities. Both are professionally managed.

There are several differences between segregated funds and mutual funds. Firstly, segregated funds are sold solely by life insurance companies. You have many of the same choices with a segregated fund as you would with a mutual fund, including bond funds, equity funds and balanced funds.

One major difference between segregated funds and mutual funds is the fact that segregated funds have a maturity date – mutual funds do not. The benefits of a maturity date, be it 15 years for example, is that if you hold the fund until that date, you are guaranteed to get money back. Although the amount varies depending on how the fund performs, although unlikely - unlike mutual funds you don’t stand to potentially lose everything that you invest.

Another fundamental difference between segregated funds and mutual funds is the guaranteed death benefit. Whereas with a mutual fund the estate or beneficiary will receive the market value of the fund only – there are no guaranteed minimums – a segregated fund pays a guaranteed amount to your beneficiary. This means that there is a guaranteed benefit upon your death no matter what the market value is.

A third difference with segregated funds is that upon your death, the benefits are paid directly to your beneficiary, rather than becoming an asset of the estate, which is the case with mutual funds. This also means that typically a segregated fund is protected from creditors, whereas a mutual fund is not. There’s also the possibility that they are private in a segregated fund.

Remember: segregated funds take some of the risk out of investing, so if you are thinking about investing but are unsure which path to take, consider segregated funds. Talk to an advisor about your goals for the future and to get an even better understanding of how segregated funds could be the answer to your investment plans.

For more information about segregated funds vs. mutual funds or to find out more about smart investing tips, please contact Independent Financial Concepts Group by calling 416-849-1653 or visit www.wecoveryou.ca.

 

 

 

 

 

High Yield Bond Investment Returns Against The Risk

Over the last few years there has been an increase in the number of people who are nervous about taking a financial risk with any form of investment. However, with the economy stabilizing, many Canadians have once again begun thinking about investing. Segregated funds, offered specifically by insurance advisors, have become an attractive option for many who have a low appetite for risk. But what if you are looking for a bit more return? A high yield bond offers many attractive benefits with a higher end yield. Whether you are looking to generate income for retirement or just want to invest with less risk than equity investments, a high yield bond is a great option.

What is a high yield bond? Like all other bonds, high yield bonds are debt securities issued by different organizations in order to raise funds. By purchasing a bond, you are effectively lending your money to that organization in exchange for interest and a guaranteed return of either all or a significant portion of your initial investment.

Demand for these fixed-income investments is steadily increasing, often because of their various benefits. Some of the benefits of a high yield bond include.

-        Higher interest rates - Since high yield bonds are accompanied by a higher level of risk, they pay higher interest rates than investment-grade bonds in order to compensate.

-        Win-win scenario - When the company that you invested in makes gains, bond prices increase, thereby increasingly the value of your investment.

-         Measure of stability - The income component of the return of a high yield bond is larger, meaning that your risk is lessened.

Still, the risk is there, and if you are still a bit hesitant a high yield bond segregated fund might be something to consider. A high yield bond segregated fund, which holds bonds issued by several companies, allows you to invest without putting all of your eggs into one basket. At the same time the benefits remain, as does the return.

What if you want to invest but are unsure as to how to go about doing it? High yield bonds can be tough for the average investor to navigate, especially if you have no previous experience. That is why it helps to have someone in your corner that can both talk you through your investment options as well as manage them. An experienced insurance advisor can offer you the advice you need and assistance you want to get your portfolio started.

For more information about investing in high yield bonds, please contact Independent Financial Concepts Group by calling 416-849-1653 or visit www.wecoveryou.ca.

 

The Benefits of Selling Segregated Funds: Insurance Advisors Take Note

When it comes to selling insurance, many advisors are heavily focused on the standard insurance products that they are comfortable with and that they are versed at selling. Sure, when a client calls you, the chances are they are usually looking to invest in some form of insurance – for a variety of reasons – but if you are only providing one product or a limited range of products, your ability to provide the service that best meets their needs may be limited.

If you work with a managing general agent, you already know the importance of maintaining your independence, and hopefully how to garner the benefits that should come from this type of partnership. But has your managing general agent discussed the benefits of selling segregated funds? If not, here are some things that you should know!

There are many benefits for your clients when they invest in segregated funds. Since segregated funds can only be sold by insurance advisors, it makes sense to diversify as much as possible and to add these important investment tools to your arsenal.

One of the major benefits of segregated funds is the low risk.  For those clients who may be a bit hesitant when it comes to investing, either because they shy away from the risk or because they have no investment experience, segregated funds offer an important opportunity. Since they are low risk, and managed effectively by an outside source, segregated funds may leave clients much more open-minded since their capital is protected.

Another benefit of segregated funds is that they have maturity dates. Clients are often unsure of how to approach investing and being able to provide them with a product that offers a timeline for their returns is useful. Being able to tell them that they are guaranteed a return if they hold a segregated fund until it reaches maturity will help those conservative investors realize that investing doesn’t necessarily need to be stressful. Also important, segregated funds guarantee a return on principle, and clients can lock in the market value every 3 years for the death benefit.

Your clients will also be happy to learn that segregated funds are guaranteed at death, so if they pass away, their beneficiary is able to claim benefits from their investment. This can be an important product for those clients looking to provide for their loved ones in the event of their death.

If you work with a managing general agent and only sell insurance, you are limiting yourself. There are major benefits to your clients to selling segregated funds, and since being able to provide the best, most diverse service to your clients is what will set you apart, offering segregated funds will only increase your credibility and reputation.

For more information about the benefits of selling segregated funds, or to find out more about working with a managing general agent that can help you get started, please contact Gary Mandel at Independent Financial Concepts Group at 416-849-1653 or visit www.joinifcg.com

Planning Ahead: Invest in Your Future with Segregated Funds

With so many different investment options out there, sometimes it can be difficult to wrap your head around the ones that are best to address your future financial goals. Sometimes investing itself can just feel like too much work, or involve too much risk, and so you avoid it altogether. If you want to invest in the future, an excellent solution is: segregated funds.

What are segregated funds? A segregated fund is an investment sold only by insurance companies that combines the growth potential of a mutual fund with the security of a life insurance policy. The life insurance company owns the segregated fund, but is required to keep it completely separate from all other assets - therefore protecting you. The value of segregated funds can fluctuate depending on changing market values, but, unlike other types of investments, segregated funds offer you guaranteed return on principal.

There are several benefits to investing in segregated funds. These include:

-       Segregated funds have maturity dates – This means that if you invest in a segregated fund and hold it until maturity (15 years for example), you are guaranteed to get money back – either the greater of the net investment or the current value (whichever is greater). Takes away the worry over risks, doesn’t it?
-       Segregated funds are guaranteed at death, the guarantee being either 75% or 100% of deposits or fair market value, whichever is higher, which means that even if you pass away, your beneficiary can benefit from your investments.
-       Segregated funds offer the ability to bypass probate and keep all of your financial affairs private. This saves your loved ones the added stress of having to deal with these issues upon your death that can often arise with other types of investments, as well as the added cost.
-       Segregated funds lower risk because you have the option of locking in market gains – and not just at the beginning of the fund. This can significantly increase the value of your segregated funds.
-       Segregated funds can be protected against creditors in the event that you suffer severe financial troubles in the future (however unlikely that may seem) because they are held as a contract with your insurance company.
-       Segregated funds are considered trusts in the eyes of the tax man, so a fund will allocate all taxable income and capital gains to investors. This means that you avoid having income taxed inside the fund at the highest marginal rate.

No matter your investment plans – whether you are planning for retirement or just want to try and make some financial gains for the future – it is important to understand the benefits of any type of investment. Segregated funds represent an important option for all types of individuals looking to invest, especially those hesitant about taking the risk.

For more information about the many benefits of segregated funds, please contact Gary Mandel at Independent Financial Concepts Group at 416-849-1653 or visit www.wecoveryou.ca

What Are Segregated Funds? We Make Sense of Segregated Funds, an Emerging Market and High Yield Investment

Many investors think of emerging markets only as stock market investing opportunities. But did you know that in recent years emerging bond markets have produced consistently strong returns? Currently, a growing selection of Canadian segregated funds can help you benefit from these returns and at the same time increase the diversification of your fund portfolio.

More to choose from and contrary to what many believe, emerging market bonds aren’t as risky as they once were and have proven to be a high yield investment.

Segregated funds don’t have to be confusing. A large percentage of emerging market bonds are higher-quality “investment grade,” unlike a decade or so ago. According to a major U.S. financial institution survey, 56% of emerging markets bonds is now investment grade, up from 17% in 1998. Plus, the difference in yields between emerging and developed markets can be considerable — often double or more for similar government bonds. For example, according to Bloomberg data, as of January 31, 2011, 10 year U.S. treasuries yielded 3.4%; meanwhile, 10 year government of Brazil bonds yielded 13%. That can make a significant difference in your portfolio’s fixed-income returns.

Certainly, part of that yield difference stems from the fact that emerging market bonds must pay higher interest to compensate investors for the risk of investing in emerging countries. Many emerging countries have environments of chronically higher interest rates, in which bonds must compete for investors’ cash. Latin American economic powerhouse Brazil, where central bank rates are among the world’s highest, is an excellent example.

Foreign-exchange risk must also be factored into your decision. Yet Brazil, like several other emerging economies, has had its sovereign credit ratings upgraded in recent years. The reason is emerging market governments and central banks have become much better at managing economies
and tempering boom-and-bust cycles.

In fact, some emerging economies fared better than their developed counterparts during the recent recession and have since returned to much higher growth rates. Finding opportunity in segregated funds emerging debt markets can be difficult to navigate. We recommend the professional money management of segregated funds that invest in emerging market bonds.

The selection of segregated funds available to Canadians is growing in recognition of the fact that emerging market securities are in demand and that they offer Canadians an alternative to traditional developed country bonds or corporate bonds.

Emerging market bond funds usually focus on bonds issued by governments, although some may hold debt issued by corporations. They typically aim for a combination of income and capital growth through potential appreciation in bond prices. We should look for funds that diversify holdings among geographic markets and bond types to help maximize returns and manage risk. You can also get exposure through international funds that hold debt securities of both developed and emerging markets.

We’ll be pleased to show you how emerging market bond funds can help boost your fixed-income returns, improve the diversification of your overall portfolio and help you reach your financial goals.

For more information about segregated funds and high yield investments please contact Gary Mandel by calling (416) 849-1653 or visit www.wecoveryou.ca