Last month RBC sent out a chart documenting how their Canadian Dividend mutual fund has outperformed the Canadian real estate market over the past 20 years. It is an interesting anecdote which will surprise most, especially here in the blissed out Vancouver real estate market. I’m not here to cheerlead for stocks beating real estate – it’s entirely plausible that real estate ‘wins’ over the next 20 years. What is interesting is how at odds peoples’ return assumptions are compared with what actually occurred, and how this disconnect surfaces often in all sorts of financial decisions people make.

What struck me:

  1. The financial media has frequently viewed mutual funds with general disdain + ongoing shots of fee hysteria. Scrutiny is warranted and some fund co’s have indefensible fees. However, the repeated negative narrative can become accepted as broad reality…which then leads to misinformed financial decisions….which often suck.
    .
  2. As far as investment vehicles go, the mutual fund can be purchased almost anywhere (bank branches, brokers, online trading platforms) and the minimum investment requirement is a mere $500. No investor is left out of this party due to lack of funds, or financing, or bidding wars.
    .
  3. The mutual fund can be redeemed at any time. This is called liquidity. And, as was wonderfully elucidated in this article: liquidity is like oxygen, no one appreciates it until it is gone. Real estate investors active in the 1980s are familiar with the concept. New real estate investors…not so much.

Intuitively we would assume that easy accessibility, liquidity and a low investment minimum would be acquired at the expense of an above average return. But clearly that isn’t the case, which brings me back to the negative sentiment funds seem to attract. While some funds maintain their outdated fee schedules, yield lackluster investment results and indefensible pricing, the RBC fund example is a reminder that the entire fund industry shouldn’t be tarred with the same brush.

The fund industry is insanely competitive and is maturing daily due to massive fee pressure. This is all to the benefit of the individual investor. You could now embark on a 20-year investment journey with funds whose characteristics and pricing make them even more attractive than the RBC example. Index fund giant Vanguard has reduced their pricing to the point they have almost run out of fees to slash. Perhaps 10 years from now their fees will be negative and they’ll pay you to show up…joking (but honestly, where do you go from 0.05% / year?)

The weak link in RBC’s chart: per Dalbar’s research, investors struggle to remain in a mutual fund much longer than 4 years on average, let alone 20 – which is another layer of reality which warrants consideration in the pursuit of a positive investor experience.