Hi, everybody. Andre here at the Coach’s Hangout, a spot where our students can come and leave their requests knowing this is where our study coaches hang out, virtually of course, and will often leave some helpful content. One of the most well-known investment vehicles is mutual funds. And if you’re taking the Canadian Securities Course, the LLQP, or obviously, a mutual fund course, you need to know the general order of fund categories from lowest risk to highest risk. These apply to segregated funds as well.
For example, what is generally riskier, a bond fund or mortgage fund? In our study tools, we help you understand why a bond fund is generally riskier than a mortgage fund. Here’s a hint. The longest term on a mortgage is usually only five years, whereas the term on a bond could be as much as 30 years. And as you may already know, the longer the term, the higher the risk. On an exam, though, a memory aid will really come in handy for this concept.
Let me tell you a story, which will help you remember the general order. I recently renewed my mortgage. Now, rather than negotiate with just one lender, I called my mortgage broker, who could survey the market and help find me the best rate. Check out what he was able to do. My mortgage broker brought down every rate substantially. The first letter from each word in that phrase can help you remember the main fund categories from lowest risk to highest risk, M for money market fund, M for mortgage fund, B for bond fund, B for balanced fund, D for dividend fund, E for equity fund, R for real estate fund, and S for specialty fund.
Now there may be other fund categories depending on the course you’re taking, but these are the main ones. And I need to stress this is a generalization. To truly assess the risk level of a fund, you or your advisor would have to do your due diligence and look closely at the fund’s disclosure documents and consider the fund’s investment objective, strategies used, holdings, et cetera.
However, for exam purposes, or even to jog a new advisor’s memory, it can be very helpful. I came up with a memory aid something like this 30 years ago when I took the mutual fund course. Now, it’s been tweaked over the years, and I don’t need a memory aid anymore, but here is the really cool thing. I will never forget it. Just like how many of you may think back on piano lessons and recall the memory aid, Every Good Boy Deserves Fudge. Thanks for dropping by the Coach’s Hangout, and good luck on your upcoming exams.