Answer :
Mutual funds offer diversification, professional management, and lower risk compared to company stock; The TD Canadian Blue Chip Equity Fund provides potential outperformance with higher expenses than the TD Canadian Index Fund and portfolio allocation should consider risk tolerance, goals, and time horizon, with a balanced approach across asset classes.
The advantages of mutual funds compared to company stock include diversification, professional management, and lower risk. Mutual funds pool money from multiple investors and invest in a diversified portfolio of assets, reducing the impact of individual stock performance. Professional fund managers make investment decisions, leveraging their expertise and research, which can potentially result in better returns. Moreover, investing in mutual funds spreads the risk across various securities, reducing the reliance on a single company's stock performance.
Choosing the TD Canadian Blue Chip Equity Fund offers the advantage of potential outperformance compared to the TD Canadian Index Fund. The TD Canadian Blue Chip Equity Fund is managed by Margot Richie, who has a track record of outperforming the market. This active management approach aims to generate higher returns than the passive approach of the TD Canadian Index Fund, which closely mirrors the performance of the S&P/TSX Composite. However, the TD Canadian Blue Chip Equity Fund comes with higher expenses (2.34% compared to 0.88% for the TD Canadian Index Fund), which can eat into the overall returns.
The choice of portfolio allocation depends on various factors, including risk tolerance, investment goals, and time horizon. A balanced approach would be to allocate funds across different asset classes to mitigate risk and potentially enhance returns. For example, a diversified allocation could include a mix of equity funds like the TD Canadian Blue Chip Equity Fund for potential growth and stability, along with fixed-income options like the TD Canadian Bond Fund or TD Canadian Money Market Fund for income and capital preservation. The specific allocation should be based on the individual's risk appetite, financial objectives, and market conditions, considering a long-term investment horizon to ride out short-term market fluctuations.
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