Considered by some to be the most successful investor in the world, most people would not choose to bet against Warren Buffet. In 2007, he publicly offered $500,000 to any investor who could select five actively managed funds that would outperform the S&P index fund. It’s no surprise that only one person, a Fund Manager, took that bet. Today, nine years in, the funds have averaged 2.2% return while the S&P index fund averaged 7.1%. In other words, if you had followed Buffet's advice and invested in the index fund you would have gained $427,000 and paid 0.05% in fees.
If you had chosen to go with the five actively managed funds, you would only be up $110,000 and paid on average 2.42% in fees.
About 90% of all mutual funds sold in Canada are Actively managed and they underperform the market approximately 90% of the time and there is still a fee for this service. If you have a fund that returns 7% annually and you pay a 2% fee, you will lose 1/3 of your gains in 20 years.
Below is a chart showing the difference between trying to outperform on the right hand side, and letting the market do its job on the left.
The solution is to choose funds that are easily available to you and charge little to no fees, thus allowing for higher returns. By empowering yourself and staying involved with your money, you can watch your investments and retirement grow quicker through accelerated compound interest. A financial coach will help you to make these financial changes, putting your money back in your hands.
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