I generally have a negative view of investing in mutual funds. When I was a mutual fund dealer with one of Canada's top financial institutions, I remember the feeling I had when trying to sell people mutual funds. I would go through the typical "know your client" questions to get an idea of an individual's investment objectives and risk tolerance but when it came down to picking the specific funds it felt like a roll of the dice. The task was always to make a the best informed decision on which funds will do well and which ones will do poorly. All mutual fund managers aspire to create a fund that out performs a predetermined benchmark, normally a stock index, and create a good return for investors. Some succeed better than others. I am skeptic however that any fund manager can do this consistently year over year. A fund manager may have what seems to be a good track record, but even using normal statistical distribution logic, there would naturally be some managers who over perform year over year, while others under perform year over year.
 
All mutual funds have different risks and rewards, and we've established that some under perform and others may over perform their benchmark targets, but all mutual funds have one thing in common: Management fees. Because there is always a fund manager who wants to be paid, and his/her pay is always taken out of the fund, the fund is already challenged to out preform their benchmark. In his book Enough, John C Bogle describes this dilemma as "heads I win, tales you lose." Regardless of whether a fund goes up in value, or if it goes down in value, the fund manager always gets his pay, even if the investor wins or loses. 

I present 2 alternative to mutual funds: Exchange Traded Funds (ETFs) and Marget Growth GICs

An Exchange Traded Fund is a security traded on a major stock exchange that represents a designated index. The result is an investment into one security that gives the same return to investors as if they had invested into the entire index basket. A great place to start learning about ETFs traded in Canada would be iShares

A Market Growth GIC is a type of principal protected note that provides the safety of a GIC, (which can be fully insured under CDIC ) and can offer returns based on an underlying index. All the big Canadian banks offer some form of these investments.

In the end, I encourage investors to educate themselves as best as possible and make their own informed opinions. No one cares more about your money than you. I urge all investors to research their investments themselves instead of just blindly giving them over to the care of a portfolio manager. Perhaps one of the two investment ideas above would be good for your own portfolio.

What do you think of mutual funds? ETFs? Market Growth GICs?