If you've caught a case of mutual fund jitters from the draft coming off the markets yesterday, take a deep breath and call your financial adviser Monday morning.

Dennis Yanchus, statistical analyst with industry group Investment Funds Institute of Canada, said market volatility will have an impact on mutual funds.

But, he added, market corrections and a recent trend in diversification within mutual funds provide stability. In other words, most mutual funds don't have all their eggs in one basket anymore.

"In July and June we saw some pretty wild market swings, but then at month's end we saw them come back up," he said. "We'll see what happens this time."

Yanchus said that since January, there has been a move to switch to fund to fund sales in which one mutual fund buys another.

Underlying these moves is a blended, well diversified fund product stretching across global markets and sectors.

However, Mohamed Ayadi, an investment management professor at Brock University, said Canadian investors will likely be spooked and reinforce the trend away from domestic investment, particularly in equity funds, and toward foreign investments.

"This will confirm the conservative mood Canadians have when investing in mutual funds in general," he said. "Canadians are more risk adverse, due to what's happening in Canada and the U.S."

While the markets will recover, it'll take time for investor pain to subside, said Bob Jamieson, a financial adviser at Edward Jones.

"When you have an injury of any sort then that area is sensitive for a while afterwards -- that's the biggest issue. When the confidence goes, it takes a while to get back.

"If you look at Canadian equity (funds), you've seen several years of stellar performance where Canadian equity was beating out most of the world. It's time for a correction," Yanchus said.

"In the U.S., it's hard to know what's going to happen or where that's going to go."

Most mutual fund buyers are not in it for the short term, he said, so most Canadians can relax unless they plan to retire soon and need income.

"You take the average investor who's saving for retirement in their 30s and 40s and the last month won't have much of an effect on their portfolio over time," he said.

"If you're older or in retirement, advisers might be looking at clients right now and saying, 'maybe we should rebalance this because you will need the money sooner."

With files from Spectator wire services

lmarr@thespec.com

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