A little over a year ago I changed my plan for how I was investing my RRSP portfolio. At first I was just in some managed mutual funds, but now I’m fully over to using just index funds (equally split with bonds, Canadian index, S&P 500 index, and an international index). My wife’s portfolio on the other hand is still setup with the same old managed mutual funds. We decided to leave it for a while and find out who was doing better.
So far I have to say I’m getting my butt kicked. My wife’s portfolio has out paced mine by 3% so far this year. This result surprised me a little at first, but then I looked into more. Now at least I know mostly why this is. Her portfolio is completely in Canadian investments and she also has the habit of building up a larger pile of cash prior to investing it. So when the market did one of its dips this year she took advantage of it and dumped in her cash in. Basically she ended up market timing a bit while I just invested $100 here or there all year long across four different index funds.
In either case the results are still valid to some degree, she had a different style and beat me so far. Yet it also points out a weakness to me on my wife’s portfolio, it has little diversification. If the Canadian index crashes, so do most of her results. So going forward I think she will keep some of her managed funds, but also add a few others to round out her exposure to different markets.
In the end I have to admit some managed funds are worth owning. If they can consistently beat the market for long periods of time they might just be useful in a portfolio.