I spend a lot of time on My Own Advisor sharing what’s working with our financial plan. Making savings automatic, staying invested in the market regardless of daily swings, holding stocks that have paid dividends for generations and killing off some mortgage debt are key elements of it. It sounds simple enough now but it wasn't always this way. In fact for a long time things weren't working very well at all. Thinking about my investing mistakes always reminds me of this quote:

Insanity: doing the same thing over and over again and expecting different results – Albert Einstein.

I've tried to make some financial mistakes only once by learning lessons from past errors. If I had to pick just one big lesson it was investing in high-priced mutual fund products for far too long.

Before I share more details about this lesson and what I learned from it, there is a quick disclaimer:  not all mutual fund products are evil.  On the contrary, there are some good mutual fund products on the market that offer diversification for a modest fee that investors who want to take a more passive approach to investing should strongly consider. 

But...

I won't list these funds today because they exist in small numbers,

And,

Past performance of these particular funds is never indicative of future results,

So,

Although these funds may be stalwarts to date, amongst the thousands of fund products available to investors, the stock market is generally efficient,

Which means,

If you're paying more than 2% for your mutual fund products then you're already at a major disadvantage to market-like returns.

This is because research (and the math behind the research) has signaled many times over:

• The gross (before expenses) returns obtained by all money managers are in the aggregate the market’s return.
• The average net (after expenses) returns to investors is the market return minus the expenses of active stock selection, transaction costs, taxation and other expenses.
• This means professional money managers, charging investors 1%, 2% or in some extreme cases even 3% in fees, must beat the market every year for as long as the fund survives, just to keep up with the market's returns.

This is largely why I left the high-priced mutual fund industry - I realized from my portfolio returns and based on academic literature - most professionally managed money is at a massive disadvantage to the market's returns.  There is virtually no evidence to suggest there is stock-picking skill among professional money managers; from year to year and there is no evidence to suggest that anyone can time the market consistently with time.

So, with that doom and gloom where does that leave you?  Where does that leave me?  It has been said there are two kinds of investors:  those who don’t know where the market is going and those who don’t know that they don’t know.  I'm in the former camp now.  I left the high-priced mutual fund industry because I was no longer convinced somebody that was highly paid, highly educated running my expensive mutual funds could deliver portfolio returns any better than what I could - if I just bought and held a number of established Canadian dividend paying stocks (that charge no ongoing fees to own them after an initial purchase) along with owing a couple of low cost, passively invested Exchange Traded Funds (ETFs) for worldwide diversification.  I was right.

My biggest investing mistake was not being fluent enough about the history of investing and being naive about the massive machine called the mutual fund industry. I won't get fooled again. 

Mark Seed runs My Own Advisor, one of Canada's leading personal finance and investing sites.  Subscribe to his site and join thousands of daily readers to follow Mark's journey to financial independence as he chronicles his lessons learned along with some notable success stories.

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