Purchase timing of MF

[bengbeng918]

Hi All,

My bank advisor told me that summer was usually quiet, and prices of most MF tend to drop or at the lowest in a year's time. Is it true? It's the case for this past summer. Not sure about last year or further back as I only started last early 2005. Suppose it's the case, then buying in the summer months with lumpsum should be better off than buying monthly, so called cost averaging? Are investment gurus selling their MFs in the higher months, and then buy back low in the summer months?

I am thinking of buying some RRSP MFs, but don't want to claim them for the tax return year 2006 yet. So I don't have to make the purchase by Mar 1, 2007.

Any thoughts on this?

[blexann]

Hi All,

My bank advisor told me that summer was usually quiet, and prices of most MF tend to drop or at the lowest in a year's time. Is it true? It's the case for this past summer. Not sure about last year or further back as I only started last early 2005. Suppose it's the case, then buying in the summer months with lumpsum should be better off than buying monthly, so called cost averaging? Are investment gurus selling their MFs in the higher months, and then buy back low in the summer months?

I am thinking of buying some RRSP MFs, but don't want to claim them for the tax return year 2006 yet. So I don't have to make the purchase by Mar 1, 2007.

Any thoughts on this?

I'd really have to question that kind of advice.

It's tricky business trying to time the market. The rule of thumb is stay invested and invest continuously and in the long run it really does not matter a whole lot when you buy your funds - or any investment for that matter.

It does sound from your post that your new to this - I would highly recommend search this site - there are numerous threads on investing and links to information on how to get started in investing.

[Sylvestre]

Hi All,

My bank advisor told me that summer was usually quiet, and prices of most MF tend to drop or at the lowest in a year's time. Is it true? It's the case for this past summer. Not sure about last year or further back as I only started last early 2005. Suppose it's the case, then buying in the summer months with lumpsum should be better off than buying monthly, so called cost averaging? Are investment gurus selling their MFs in the higher months, and then buy back low in the summer months?

I am thinking of buying some RRSP MFs, but don't want to claim them for the tax return year 2006 yet. So I don't have to make the purchase by Mar 1, 2007.

Any thoughts on this?

first off, the price of a mutual fund is based on the value of it's holdings. The price doesn't go up/down based on supply/demand of the fund itself.

A lot of studies have been done regarding single purchases vs. averaging. In almost all cases, averaging beat the scenario of single purchases. If I remember correctly, the only scenario that beat out averaging was when you absolutely buy when the fund is lowest, and sell when highest.
As you can imagine, the probability of buying when it's lowest and selling when it's highest is low.

so, dollar for dollar, if you are going to hold a fund for a long time, dollar cost averaging almost always wins out.

having said all that, there are absolutely cycles in the year when more action happens, and that influences the price. e.g. fiscal year end for big institutes means fund managers try to cut their loses. the general public buys like crazy between feb-apr. etc etc.

[bengbeng918]

Thanks to Sylvestre and blexann. I think both of your arguments make sense. I will do the research on this forum and elsewhere. Got a bit of downtime to study for this now.

Cheers.

[HighFlyer]

one thing you need to watch out for if you're buying near the year end, is the taxable capital gains distributions. depending on your tax situation, this may or may not be desirable.

[bengbeng918]

one thing you need to watch out for if you're buying near the year end, is the taxable capital gains distributions. depending on your tax situation, this may or may not be desirable.

Just to make sure. Say I bought $5000 RRSP MF in Dec, but have no intention to claim it on 2006's tax return. Do I need to report the capital gain still? Or the funds in the RRSP can grow tax free, even the unused contribution part?

[15-20_God]

Just to make sure. Say I bought $5000 RRSP MF in Dec, but have no intention to claim it on 2006's tax return. Do I need to report the capital gain still? Or the funds in the RRSP can grow tax free, even the unused contribution part?

you don't need to report any capital gains as long as its held inside an rrsp.

and i would question your banker advising you to purchase in the summer "as its usually quiet and prices drop". There is some evidence to support the "sell in May" theory but not enough to accurately trade on. If it were that easy everyone would be doing it, and if everyone were doing it then that would negate any opportunistic entry point.

[controlyar]

:lol:
Yes, you must buy in the summer when prices are low!!
I think your bank advisor is either 1)slow 2)employed by Primerica.
Hmmm, well, if you are employed by Primerica you are also most likely slow.
:lol:

[HighFlyer]

Just to make sure. Say I bought $5000 RRSP MF in Dec, but have no intention to claim it on 2006's tax return. Do I need to report the capital gain still? Or the funds in the RRSP can grow tax free, even the unused contribution part?
Sorry, you are correct. I didn't read the part about the RRSP. Taxation of capital gains doesn't come into play.

[bengbeng918]

Sorry, you are correct. I didn't read the part about the RRSP. Taxation of capital gains doesn't come into play.
No problem.

[Wall Man]

Your 'bank advisor' is an idiot. Please let us know which bank it is so we can avoid them entirely.

[mma]

one thing you need to watch out for if you're buying near the year end, is the taxable capital gains distributions. depending on your tax situation, this may or may not be desirable.

just to be perfectly clear:

if you're buying a fund within an rrsp, you won't have to pay tax on the distributions. is this correct??

[Wall Man]

That is correct.

[Primer]

:lol:
Yes, you must buy in the summer when prices are low!!
I think your bank advisor is either 1)slow 2)employed by Primerica.
Hmmm, well, if you are employed by Primerica you are also most likely slow.
:lol:


Who are you employed by?