More Efficient
On top of the tangible costs of owning mutual funds, most mutual funds have inefficiencies that may be very difficult to calculate, but which can significantly impact the investment returns.
Cash Drag
Mutual funds need to hold large cash reserves as money flows in and out of the fund. Since this money is not in the market, investors are missing out on potential returns.
Market Impact Costs
Many mutual funds buy or sell so much of a given stock that they can affect its price. When large blocks of a stock are sold, the supply of that stock in the market increases, which tends to drive the price down. When large blocks of a stock are bought, the demand for that stock in the market increases, which tends to drive the price up.
The result is that mutual funds tend to buy at a premium and sell at a discount, thereby reducing the investor’s returns. Returns are reduced even further because mutual funds typically turn over 75-200% of their securities every year.
Tax Inefficiencies
Investors holding mutual funds in non-registered savings plans are required to pay tax every year for capital gains incurred by the fund even if they haven’t sold the fund.
Polaris Financial: A More Efficient Investment
Your Polaris Financial portfolio utilizes a long-term buy and hold strategy. This strategy significantly reduces cash drag, ensuring that you get the full benefit from market gains.
Investments with Polaris Financial will not be subject to the same market impact costs, because our turnover is much lower (below 12%).
As for taxation, most of your capital gains taxes are deferred until you sell your investments. In addition, with Polaris Financial, a large portion of your fee is tax deductible for non-registered investments, which may not be the case with mutual funds.
These inefficiencies take money out of your portfolio. Our investment strategy will reduce or remove these inefficiencies so that your money stays in the market capturing long-term gains.