Canada Pension Plan investment results have been disappointing, and changes are needed, writes Peter Watson.
Articles written about poor investment performance can be discouraging. Particularly so when the poor performance is reported by the Canada Pension Plan (CPP).
CPP manages close to $800 billion on behalf of Canadians, and those funds are used to pay us retirement income during our senior years. We all have a personal interest in the CPP’s investment success.
Unfortunately, the most recent investment results have been poor, and those disappointing investment results are similar to the poor performance in previous years. If we agree that underperformance is not acceptable, then changes should be made.
The starting point is the money management philosophy. We know from research and many years of experience that a key to achieving successful returns is keeping management costs low.
The second reality is that actively managed accounts most often do not beat the underlying markets they invest in. If that is the case, then continuing to pursue active management, in which investment decisions are made about which stocks to buy and sell, at what price and when, is a losing strategy.
Those two realities are what drive investment returns. Low-cost passive investing is a key to success.
The option for CPP is to transfer the money management of its funds to successful industry money managers that use a passive management approach and offer their services at a low cost.
In the current national spirit of building Canada strong, if we are getting poor investment results with CPP management, then it is time for a change.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com.
