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With the aftermath of 2008's financial implosion beginning to clear, Canadian investors are looking to build, or rebuild, their savings. But whether to do this passively, actively or someplace in between, can flummox the best of us.

"I'm just amazed at the number of people who have disengaged and think that buy-and-hold is just another word for ignore," says Jim Yih, a financial speaker and fee-only adviser based in Edmonton. "You've got to care. If you don't care who will? So whether you're active or whether you're passive ... you have to engage."

There seem to be as many definitions of passive and active investing as there are investors, ranging from the ultra-passive buy-and-ignore couch potato to the super-active day trader.

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But if you look at the two strategies as circles, "they actually overlap," Mr. Yih says. "And there are people who are part passive, part active. It's not one or the other. An active investor surely can buy an ETF [exchange-traded fund] a passive investor can buy individual stocks."

Passive strategies

As part of the mix, many experts favour low-cost, broad-based exchange-traded funds, such as iShares' S&P/TXS 60 Index Fund and Canadian Dividend Index Fund.

The iShares fund is a "plain Jane, generic, low-cost investment vehicle" that charges .17 per cent in fees compared with 2 per cent to 2.5 per cent for a comparable mutual fund, says Garth Rustand, executive director of the Vancouver-based Investors-Aid Co-operative of Canada, a Web-based consumer organization for investors.

"It's a huge difference," he says. He also points out that it is one of the most liquid securities on the market.

Toronto-Dominion Bank's e-funds, the online series of the more widely available TD mutual funds, are "the biggest screaming deal in this country," Mr. Rustand adds. "They have indexed mutual funds, they're dirt cheap, they're very, very low cost ... and really easy to access." The ones he recommends are the Canadian Index Fund, the U.S. Index Fund, the Canadian Bond Index Fund and the International Index Fund.

He also likes some of the mutual funds offered by the banks, specifically lower-cost, fixed-income funds, such as Canadian bond indexes by the Royal Bank of Canada, TD, Scotiabank and CIBC, and dividend funds such as Canadian equity indexes from RBC, TD. Scotiabank, BMO and CIBC.

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"All the research shows that you're better off with just a long-term, low-cost, passively managed index portfolio," he says, which can be general ETFs or low-cost index funds. "It's not very exciting, but anybody can go off and do it."

Active strategies

Mr. Yih says active investors need a solid investing plan and good research to fill it. "A lot of active buyers, they buy a little of this, they buy a little of that, but there's no structure to it, there's no rhyme or reason to it. ... Before you know it you've got 20 holdings in your portfolio and none of it makes sense."

The structure for the active investor, he says, is: Figure out your needs, risk tolerance, objectives and timelines; come up with a framework; do your homework, and then go find the holdings to fill your plan.

While Mr. Stephenson recommends a mix for passive investors that includes broad-based ETFs, mutual funds, bonds, cash and real estate equity holdings, active investors could focus more on the developing world, sector-specific funds, a little less cash and bonds, he says. But his caveat is: Pay attention and revisit your thinking regularly.

For example, he says, TD Economics predicts that by 2020 two-thirds of the world's economic output will be coming from the developing world. "I think an active investor should be aware that that's the case and they should be thinking of things that the developing world will want and need … to produce cities, produce places for peoples to live, manufacture cars, et cetera."

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That means keep an eye on the emerging markets - including China, India, Taiwan and South America - and the resource-rich countries that produce the products the developing world will need, such as Canada and Australia. Active investors should also consider exposure to large-capitalization stocks and some small-cap companies that produce commodities, resource funds and/or ETFs that reflect those sectors, Mr. Stephenson suggests.

"If you're thinking about it once a week, you can assess in your own mind whether or not this theory is playing out and if it's not, then obviously you're going to have to come up with a different theory."

Another key is to keep expectations - and risk - realistic. Don't get caught in the greed cycle and don't panic, says Ross McShane, director of financial planning at McLarity and Co. Wealth Management Corp. in Ottawa.

"How soon we forget," he says. "Here we are, two years later, after '08, and markets [are]rolling along and I think a lot of people have forgotten that they were running for the exits two years ago." Rebalance

Once you've put your portfolio together, review it from time to time. For passive investors that might be every six months or so, to make sure it's still meeting your needs.

"We're not trying to figure out where the markets are going as much as we're working with the markets," Mr. McShane says. "We're rebalancing the portfolio based on how the markets are behaving."

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