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Smart investors embrace low-cost market returns
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By Fund Library News Wire  | Thursday, November 08, 2018


By Tim Huver, Head of Product, Vanguard Investments Canada

It can be tempting to try to beat the market. Some skilled investors, who can dedicate the time and effort and keep costs low, have had some success. But for most, it’s a difficult task.

In fact, 2017 performance figures for active funds across a range of investing categories show just how difficult beating the market can be, even for the pros. In only one category – international equity – did half of funds available for sale in Canada outperform their benchmarks. The vast majority of funds in all other categories underperformed.

Extending our examination to 10 years doesn’t give active funds an advantage. The percentage of underperforming funds over that period is just as striking.

Why can’t the professionals beat the market consistently? Plain and simple, investing is challenging. “The market” includes all investors, so the pros need to be better than the competition.

But a critical factor to investing successfully is assessing the effect of costs. Active managers’ expenses for research and transactions leave less margin to beat the market – and less money to pass along to investors. The more a fund charges in fees, the greater it must outperform the market just to break even.

What’s an individual investor to do? If you can’t beat the market, why not embrace its return? Index funds seek to track a given market or market segment, rather than pick its winners and losers. So investors receive the market’s return minus costs, which for index funds are typically far less than for active funds.

Beating the market is difficult. Being a smart investor can be quite easy!

Tim Huver is head of product for Vanguard Investments Canada Inc. He joined the Vanguard organization in 2000 and has held roles in the United States and the United Kingdom, working with Vanguard’s global ETF platforms for nearly a decade. Most recently, Mr. Huver was Vanguard’s head of product management in Europe. He supported the establishment of Vanguard’s ETF platform there and managed the launch of Vanguard’s first European ETFs. Previously, as a member of Vanguard’s U.S. ETF Product Management team, he coordinated launches and provided capital markets support for ETF trading. Mr. Huver earned a BS in marketing from Saint Joseph’s University and holds a number of U.S. investment licences.

Notes and Disclaimer

© 2018 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. This article first appeared on the Vanguard Canada website. Used with permission.

Important information

The views expressed in this material are based on the author's assessment as of the first publication date (September 2018), are subject to change without notice and may not represent the views and/or opinions of Vanguard Investments Canada Inc. The authors may not necessarily update or supplement their views and opinions whether as a result of new information, changing circumstances, future events or otherwise.

This material is for informational purposes only. This material is not intended to be relied upon as research, investment, or tax advice and is not an implied or express recommendation, offer or solicitation to buy or sell any security or to adopt any particular investment or portfolio strategy. Any views and opinions expressed do not take into account the particular investment objectives, needs, restrictions and circumstances of a specific investor and, thus, should not be used as the basis of any specific investment recommendation.

Please consult your financial and/or tax advisor for financial and/or tax information applicable to your specific situation.

While this information has been compiled from sources believed to be reliable, Vanguard Investments Canada Inc. does not guarantee the accuracy, completeness, timeliness or reliability of this information or any results from its use.

All investments, including those that seek to track indexes, are subject to risk, including the possible loss of principal. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is not a reliable indicator of future results.

In this material, references to "Vanguard" are provided for convenience only and may refer to, where applicable, only The Vanguard Group, Inc., and/or may include its affiliates, including Vanguard Investments Canada Inc.

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