In August of 2008, our friend Harry kissed good-bye to the expensive financial products that his advisor sold him.

With annual expense ratio fees of 2.6% for his Canadian mutual funds, adding with an estimated hidden fund cost of a further 0.75% per year for the fund’s expenses related to buying and selling stocks within the fund, Harry’s investments were costing him more than 3.5% annually.

For Canadian mutual funds, these costs would be about average. But Harry didn’t want to be average. He wanted to follow a simple principle designated statistically superior by virtually every academic study that has ever been done on mutual funds. Harry wanted to buy products called Index Funds. They are cheap, diversified, and nobody but Harry stands to benefit from them when Harry makes his purchase.

But, did not having an “investment professional” at the helm hurt Harry’s account during the market downturn? After all, the market drop of 2008/2009 was the biggest market decline since 1973/1974. It was much bigger than the overall drop in 1987.

Should Harry have had his money managed by a professional? Would they have been able to save his account? The answer to those questions, are “Nope” and “Nope”.

Harry has done very well on his own. You see, Harry was pretty smart. He knew that, because he was retired, he’d want a portfolio that had only half of it exposed to the stock market. The other half, he wanted exposed to the bond market—but safe, government bond indexes only.

And when the stock market started to get cheap, Harry sold some of his bonds to rebalance his account. With the proceeds, he bought some cheaper stock indexes.

Harry took some money out when the markets were low also, when he needed some cash for an airplane he was working on. But Harry was smart. The stock markets were cheap then, so Harry took that money from his bond indexes—which hadn’t dropped in value.

Harry hasn’t made a fortune since August, 2008, but he has made a profit of $3,578.06, which you can see below.


But are there Canadian balanced mutual funds that would have performed as well, if not better? If the answer is, “yes”, I haven’t been able to find them. Over that time period, they would have needed to make about 4%-5% more than Harry, before fees, just to keep pace with Harry’s account. A quick look at reveals that if they do exist, they’re scarce. I sure wasn’t able to find them.

Simply, if Harry had bought some professionally managed balanced funds, he wouldn’t have done as well. I’ve picked on the big Canadian bank mutual funds with my other postings, so I’ll broaden my horizons here to compare Harry’s account with some of the alternative fund companies.

Acuity Canadian Balanced

as of Dec 3, 2009

He would have been about $20,000 worse off with the acuity balanced fund:




AIM Canadian Balanced

as of Dec 3, 2009

He would have been about $21,000 behind if he bought the AIM Balanced Fund:




BonaVista Canadian Equity

as of Dec 3, 2009

 He would have been about $25,000 behind with the Bona Vista Canadian balanced fund:




Davis-Rea Balanced Pooled

as of Dec 3, 2009

He would have been about $27,000 behind with the Davis-Rea Balanced Fund:




Invesco Trimark Core Cdn Bal Cl

as of Dec 3, 2009

 He would have been about $25,000 behind with the Invesco Trimark Balanced Fund:




TD FundSmart Mgd Balanced Grt-P

as of Dec 3, 2009

And he would have been roughly $16,000 behind if he bought the TD Fundsmart Managed Balanced Fund:




Brigata Canadian Balanced-A

as of Dec 3, 2009

He’d be about $16,000 behind with  Brigata Canadian Balanced-A too:




Clarica SF Portfolio Series Bal

as of Dec 3, 2009

 And he’d be about $30,000 behind with the Clarica Balanced Series:




In case you’re wondering why I picked balanced funds to compare with Harry’s account—there are a couple of reasons:

  • Reason 1

A balanced fund is the single fund that most closely resembles Harry’s portfolio. And other than straight bond funds (that avoided the stock market completely) they had the best performance since August, 2008.

  • Reason 2

If I compared with a 100% stock fund, regardless of which one I chose, the comparative results would have been disastrous. Harry would have looked like a genius.

And Harry is no genius. What he did with his own account, you could have done with yours. And you could do it now, if you want to.

Avoid high cost mutual funds if you can. Buy low cost index funds instead.

And do me a favour. If you can, find me a Canadian balanced mutual fund that has outperformed Harry’s indexed account from August 15, 2008, until December 4, 2009. After all fees, Harry made 1.3% during this time frame.

But if you can find me some better balanced funds, I’ll then show Harry.

 After all, Harry might be getting a very big head over all this.

…continue to track the progress of Harry’s Account  from the right menu