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Investing Can Be Simple: Do What Works

Investing Can Be Simple: Do What Works

November 19, 2021

Picking the best mutual fund is a difficult task, writes Peter Watson.

You would hope for two things: The mutual fund would stay in business, and the fund will outperform its benchmark.

In 2001 there were 2,900 US-based equity mutual funds. Twenty years later only 41 per cent of those funds were still in existence.

Mutual funds merge on a regular basis. For many investors, the mutual fund you initially select is not the one you end up with.

A more important question is: how did mutual funds perform?

Only 19 per cent of the funds survived and outperformed their benchmarks over the 20-year period. This information is from the Mutual Fund Landscape 2021, Dimensional Fund Advisors.

There are two distinctly opposite approaches to managing money. Some managers believe that stock markets are efficient and the best estimate of the value of a stock is the price the stocks is publicly traded.

Others believe a skilled investment manager can find mistakes with prices of stocks. Based on this belief the managers buy stocks they feel are under-priced and sell stocks they believe are overpriced.

The fundamentally two different approaches to investing have been in existence for decades.

So, what is the best approach when it comes to managing your investment portfolio?

My opinion is based on past evidence. Do not try to outperform the market by selecting an actively traded fund. Invest in an extremely well diversified investment fund.

Following the evidence can be your path to successful investing.

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Watson Investments –