This is rather paltry, but with a bit of creativity, you can improve your return by cutting on those hefty management fees. So what can you do to cut costs? One option would be to put 40% to 50% of your money in a Canadian equity fund, and the remaining portion in a Canadian bond fund, or even better, in bond-oriented iShares. What you would wind up with is the equivalent of a traditional balanced fund, but at much lower cost (and much better returns).

Your mutual fund company will tell you that a balanced fund will provide the benefit of a managed portfolio, and that your fund manager will know when to buy equities and when to buy bonds. This is the theory. In many cases, however, this is just an excuse to charge you more fees. Historically, fund managers have not made big bets against the market. They rather play it safe, by maintaining stable asset allocations, from which they move by increments of 5-10%. Our research shows very clearly that, historically, a mixed portfolio of equity and bond funds has done much better than the typical balanced fund. The only situation in which an actively managed balanced fund would do better is during bear markets. If you think that the market is heading south, a balanced fund is probably a better option. Otherwise, a portfolio mix of bond-oriented iUnits and equity funds is likely to out-perform most balanced funds.