Dale Jackson

Personal Finance Columnist, Payback Time

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November is Financial Literacy Month. It’s a time when we’re normally bombarded with industry-generated surveys that show how dumb the average investor is when it comes to managing their retirement savings.

But some of the blame has to go to the industry itself for perpetuating old myths designed to separate us from our money. 

Here are a few that often get passed by without a challenge:

• Past returns indicate future returns. Investment firms love to brag about past returns but a recent Wall Street journal investigation on Morningstar mutual fund ratings over 15 years found that the highest rated mutual funds failed to deliver superior results. Fund managers can dress up or goose their performance when it makes them look good. In the case of value funds that seek out good companies that are beaten down, it might be the bad performers you should be looking at.
• Higher fees mean better performance. The opposite is usually true. Fees are normally based on a percentage of the total amount invested. If you pay a two per cent fee, the fund needs to generate a seven per cent return to make you five per cent. Curiously, the average mutual fund underperforms the benchmark by about the same amount as the fee.
• Mutual funds are a rip-off. While the average mutual fund does underperform the benchmark, there are many mutual fund that blow away the benchmark. Long term annual returns can vary by double-digit percentages. Investors who put their trust, and money, in good management are often rewarded.
• You should borrow to invest. Most investment firms are affiliated with banks. They make money when you invest, and when you borrow money. That conflict allows them to get you coming and going. In reality, compounding works both ways. Debt eats away at returns. The big difference is; paying down debt at ten per cent is a risk-free return. Making ten per cent on an investment is not a sure thing. It’s often better to invest in your debt.

That conflict also makes it difficult to get unbiased investment advice. The Ontario Securities Commission has an investor education website called getsmarteraboutmoney.ca. It includes investment basics, calculators and regulatory oversight for investors with complaints. Do yourself a favour this Financial Literacy Month and check it out.