Skip to main content

Conservative investors have the luxury of feeling impervious when stock markets tank, but they also pay a penalty in forgone returns.

Let's calculate those lost gains. If you owned what Globeinvestor's database shows to be the largest mutual fund in the land, the $19-billion RBC Select Conservative Fund, you would have turned $10,000 into $15,694 from October 2005 through October 2015. Investments in five-year guaranteed investment certificates at average rates over that period would have made you almost $12,500.

In this recent column, I highlighted Canadians' troubling and stubborn preference for keeping money in safe places rather than investing it. Safety is fine for short-term saving, but it's no way to reach your financial objectives.

RBC Select Conservative is middling sort of fund that has had periods of above and below-average performance in its category of global neutral balanced funds. Let's call it representative of what you might get if you went to a bank branch to buy a mutual fund. Even by this meagre standard, it was a better choice for investors through the turbulence of the past decade than super-safe investments.

Yes, you would have lost money in this fund in 2008 – it fell almost 12 per cent, while the S&P/TSX composite index lost roughly one-third of its value. Since the crash, this fund has made money every year, with a low of 0.6 per cent in 2011 and a high of 11.3 per cent in 2009. Nothing dramatic, just better results than safe investments.

Bad things happen when we invest beyond our true ability to tolerate risk. We sell after prices decline, feel regretful during the inevitable rebound and then buy back in near the peak. But playing it safe also has a cost in denying us the returns we need to meet our financial goals. Those better returns are not hard to come by. A basic mutual fund like RBC Select Conservative has done the job, and there are better products out there.

If you're sitting on a pile of cash or using GICs exclusively, think about carving off some of your money and putting it into a diversified portfolio of exchange-traded funds or mutual funds. Then, give yourself a five-year period at least to let your new investments do their stuff. You don't have to get fancy – better returns are there for the taking.