If you listen to many investment advisers, the advantage to investing in mutual funds is to beat the market, right? So you would think that a significant number of mutual funds would do that.

The evidence proves that’s overwhelmingly not the case. In fact, as PWL’s Ben Felix writes here, 91.1% of Canadian equity mutual funds trailed their benchmark index over the ten years ending December, 2016. That’s 10 out of every 11 funds that fell short.

Aside from the fact that it’s impossible to predict the future, a big reason why it’s so hard for mutual funds to beat the market is that they charge higher fees. When you charge more, you have to generate even bigger returns to beat the market. As the evidence shows, that’s very difficult to do.

Of course, you could try to invest in the 1 out of 11 funds that did okay. The only question is: how would you know which one to choose? The odds are stacked against you.

 

The views of the author are his alone and may not represent the views of PWL Capital. Any data, information and content on this blog is for information purposes only and should not be construed as an offer of advisory services. Mark Sutcliffe is not regulated by Investment Industry Regulatory Organization of Canada (IIROC), nor a member of the Canadian Investor Protection Fund (CIPF).