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www.insideHALTON.com | OAKVILLE BEAVER | Thursday, December 5, 2013 | 12 IN DO W M S Is your active investment approach failing? returns fail, making nancial planning, based on estimating future returns, dif cult. If returns are lower than predicted because of a awed investment approach, there is less money available in the future to nance personal objectives. Therefore, what you saved and invested for may not be affordable. It is a myth by identifying and investing in the funds of several successful managers you too will succeed by investing in their funds. There is no evidence this actually happens. While the proof is in the results, following the mutual fund manager's actual performance is dif cult. Many funds disappear, so getting a manager's true historical mutual fund performance is challenging. For the 10 years ending Dec. 31, 2012, half of the funds that were in existence at the beginning of the period had vanished. There is a correlation between funds with poor investment results being those withdrawn from the marketplace. It is even hard to nd a fund with good results amongst the more successful ones that continue to operate. Of those remaining funds with a ve-year track record, one in four beat the underlying benchmark. After 10 years, the success rate was reduced to one in six. These are dreadful results, which motivate many investors to search for a better way of picking a winning manager. The most popular way to choose a mutual fund is to simply buy those funds that have outperformed in the past. Funds with a suc- WINDOWS & DOORS: windows and patio doors EST. 1966 AWNING PRODUCTS 905 335 3733 www.jansawningproducts.com VISIT OUR SHOWROOM AT 4361 Harvester Road, Burlington ost investors fail because their investment approach doesn't work. Unfortunately, the investment industry is designed to perpetuate that continued and predictable failure. The most important investment decision to be made is determining whether to be active or passive. Most investors are active, meaning they, or those managing their money, actively buy and sell securities. Their goal is to beat the market instead of using the passive approach of investing broadly to capture market returns. The path you take will determine your destination. It is the largest single decision in uencing your investing success or failure. This column is targeting all conventional active investing whether it be in mutual funds, managed portfolios or owning individual securities. The unpleasant, cold truth about investing can be illustrated through mutual fund under-performance in the U.S. Most investors and those advising them are trying to deliver superior returns. If the Canadian market increases in value, you hope you will have a return higher than the increase. The data used in this article comes from the CRSP Mutual Fund Database provided by the Center for Research in Security Prices, University of Chicago. The funds in this database manage $11 trillion in assets around the world, so it is an excellent proxy for the investment industry. Investors attempting to achieve superior Dollars & Sense S & DO OR Peter Watson Guest Contributor W cessful past performance are those most often recommended by investment advisers. Logically this seems sound but realistically it isn't. As the disclaimer clearly states -- past performance is not a good measure for future investment returns. Only one in four successful managers outperforming the market in the three years ending in 2009 were successful again in the three years ending in 2012. The foundation of most people's active investing approach is awed. They will likely be disappointed with poor returns. There is little justi cation paying high investment fees when we can so easily predict poor investment performance relative to taking a passive approach to investing. Our recommendation is to invest in passive investments containing a broad selection of securities. Your goal should be to capture market returns and avoid expensive activelymanaged investments that continually produce sub-par returns. -- Submitted by Peter Watson, MBA, CFP , R.F .P ., CIM, FCSI., Certi ed Financial Planner Free PANDORA Ornament with $150 purchase of PANDORA Jewellery.* November 30­December 8 *Receive a PANDORA holiday ornament (a $25 CDN retail value) with your PANDORA purchase of $150 or more. Before taxes. While supplies last, limit one per customer. See store for details. Experience at: Mapleview Centre Burlington · Upper Level Centre Court 905.632.5400 Sterling silver charms from $29