Q&A: Searching for a Fund

A reader’s wife has $10,000 in a TFSA and wants it to grow. What’s the best fund?

Q – My wife has $10,000 in a Bank of Montreal TFSA. My intentions are to build up her account with my CPP. Question: Does the Bank of Montreal have any funds with low MER that she could show 3% or better return? – Bruce J.

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A – It depends what you mean by a low MER, what time frame you are looking at, and how much risk you are prepared to take. BMO’s cheapest offerings are its exchange-traded funds (ETFs) but you would have to set up a brokerage account to buy those. In terms of mutual funds available through the bank, the lowest MERs would be for the money market and bond funds but neither is likely to generate 3% over the next year. In fact, BMO Bond Fund is actually down year-to-date.

The reality is that BMO does not offer many outstanding mutual funds. If you must stick with them, my advice is to forget about MER and choose a fund that offers the best combination of growth potential and risk for your comfort level. If the goal is to maximize growth, the BMO Canadian Small Cap Equity Fund has an excellent record, with an average annual compound rate of return of 14% for the five years to Sept. 30. But it may be higher risk than you’d like. The BMO Monthly Income Fund is more conservative but it has an average five-year rate of return of only 5%. Your call. – G.P.

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