The Ontario Securities Commission is cautioning investors about the costs of investing, and the risks of leveraged investing in particular.
With the onset of RRSP season, the OSC is reminding investors to pay close attention to the risks of leveraged investing and the costs of investing. “When making investment decisions, it is important to know that using borrowed money to purchase investments increases your investment risk. You should also ensure that you fully understand the costs associated with your investments,” it says in a notice to investors.
The notice provides a comparison of leveraged investing versus straightforward cash investing, and explains the added risks that accompany leveraged investing. It also counsels investors to minimize those added risks by investing for the long-term; paying down principal, not just interest, on investment loans; and following a disciplined investing strategy.
It also reminds investors to always pay close attention to the costs of their investments. It notes that while trading costs associated with stock trades may be fairly straightforward, the embedded costs in products such as mutual funds may not be as obvious.
“Research shows that investors are not aware that they are often charged to simply own an investment,” it says, and it notes that trailer fees in particular are “not well understood by most investors”.
It encourages investors to seek information about investment costs in mutual fund filings, Fund Facts documents, and from distributors. “All investments involve costs to the investor and mutual fund trailing commissions are just one example. If you plan to buy investments from financial institutions such as banks and insurance companies, you should be diligent in asking about the costs of investing from those sources,” it says.