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February 9, 2 0 1 7 | 32 Have a candid conversation with advisor about mutual funds U www.insideHALTON.com | OAKVILLE nderstanding your investment returns is something most investors want. Last year there was a change to how that re turn is calculated. The significance is understanding the simple logic of this change will help investors better un derstand how well their investments are doing. Last year, the Canadian Securities Administra tors mandated investment returns be calculated differently. The starting point for this topic is to understand what is meant by a "rate of return." An investment return is how much the value of your investment changed over a specific time period. If you start the year owning a $100 in- vestment and at the end of the year it has appre ciated to $110 you have a positive return of $10, or an annual gain of 10 per cent. That is pretty simple. Added complication comes from the reality that during the year you might deposit or withdraw funds from your ac count. Sometimes you might do both, deposit and withdraw. When a transaction occurs, the year is divided into sections. A new time period is added each time there is a transaction of either a deposit or withdrawal. Returns for each different time pe riod are calculated and then added together to produce one rate of return for the year. This is T H IR T Y 750s Experience premium w inem aking at the best prices. SEEW HAT MAKES US DIFFERENT YOUR WI N E MA K I N G E S T A B L I S H M E N T Make Your Own Wine from C onnoisseur California $69' a batch! Hours: Tuesday-W ednesday: 10:30am-6pm Thursday-Friday: 10:30am-8pm Saturday: 9am-5pm Sunday-M onday Closed Call for appointment. Every batch m akes 30 bottles. *First time clients only, with coupon. 1144 S p e e r s Rd. O akville · 905-842-7507 · w w w .th irty 7 5 0 s.co m referred to as a "time-weighted" rate of return. Each time period has equal weighting. Just add the different returns together and that is your re turn. That is the way returns where calculated in the past. Now things have changed. The reason for the change is often the invested amount varies. For the above return calculation of 10 per cent, assume your investment at the start of the year was only $10 and during the last few days of the year you invested an additional $90. Because your return during most of the year was based on a small amount and only the final few days of the year did you add additional funds, the original method of calculating the return on a "time-weighted" bases is misleading. The new method used to calculate your invest ment return is based on the different amounts of funds invested at different times during the year. The new calculation method is called a "money weighted" return on investment. For an investor who added additional funds to their investment late in the year the "dollar weighted" method of calculating the return is more meaningful. The same logic applies to any investor who had different amounts invested throughout the year. So far so good. Except... there is an issue. Investors want to compare their returns with a benchmark. How have their investments per formed against other similar investments? If you own a mutual fund that invests in Cana dian stocks, one measure of comparison is bench marking your investment performance compared Dollars & Sense Guest Contributor BEAVER |Thursday, Peter Watson to the underlying Canadian stock market. That is a reasonable comparison. The bench mark index of the Canadian stock market will be based on holding all stocks that make up the in dex for the entire year with no transactions. Your return on investment figure will now be based on the timing of your transactions and the different amounts invested throughout the year. You are comparing apples with oranges. Com paring your return against an index will be less useful in the future. One suggestion if you want to evaluate the performance of mutual funds you own is to use the publicly available information of mutual fund performance against the underling market the funds invest. For example, how do your Ca nadian mutual funds perform against the perfor mance of the Canadian market? Understanding how investment returns are re ported will help you be able to evaluate how well your investments are doing. -- Submitted by Peter Watson ofPeter Watson Investments and Aligned Capital Partners Inc., MBA, CFP R.FP, CIM, FCSI., Certified Financial Planner ThisMonth N E S M S W A G A Z I N E Canada's Fifty Plus Newsmagazine C it^Pahebt.C oir* Sunday, April 9,2017 from 10 a m to 3 pm M IL T O N In P a rtn e rs h ip w ith CanadianChampion CELI MILTON SPORTS CENTRE 605 Santa Maria Blvd., M ilton KieferSutherland R ecipeforR om ance TinsdtownQuiz Valentine'sE sca p e Datdbook fee. theG o o d s A F U N F IL L E D D A Y with everything for families Education · Attractions · Camps · Family Planning Admission courtesy of S p rin g r id g e y ' WcWwTM1 1 FEATU RIN G LIVE £ ENTERTAINM ENT ass: ze^niyersiDy SN O W Q U EEN & SN O W P R IN C ESS Face Painting by: To booka booth at the Family Show call 9 0 5 -8 4 2 -6 5 9 1 ext 7 4 0 7 0 8 or 1-8 0 0 -6 9 3 -7 9 8 6 Pockets parking metrolandmeda For a pickup location near you, please call 289-293-0698 Visit: www.foreveryoungnews.com to see this edition and past issues. 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