Why Active Mutual Funds Hurt Your Retirement Plan is something most retirees learn too late. We continue to see hardworking Canadians unknowingly lose thousands, sometimes hundreds of thousands, simply because their portfolios are filled with high-fee, underperforming investments. And the worst part? It’s usually not their fault.
In this post, we’ll break down exactly why active mutual funds often do more harm than good, especially in retirement, and what you can do instead.
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What Are Active Mutual Funds?
An active mutual fund is a pool of money managed by a fund manager who selects which stocks, bonds, or assets to buy and sell. On paper, the goal is to outperform the market.
In reality, the odds are stacked against you. According to SPIVA research, most active funds consistently underperform their benchmarks.
| Time Frame | % of Canadian Equity Funds That Underperformed |
| 1 year | 88% |
| 3 years | 90% |
| 5 years | 92% |
| 10 years | 95.5% |
Source: SPIVA Canada Year-End 2024 Scorecard
And it’s not just Canadian funds. Underperformance is even worse in the US and global markets, as high as 98 percent.
Why Active Funds Fail Retirees
There are two main reasons why active mutual funds hurt your retirement plan.
#1 The Fees Are Too High
Active mutual funds come with layers of built-in costs. You’re paying for:
- The fund manager
- Research teams
- Internal trading costs
- Marketing and distribution
These fees often range from 1 to 2.5% annually. Over time, that can eat away a large portion of your investment returns.
#2 They Require Perfect Timing
Active managers have to make hundreds of decisions a year. They need to get it right when they buy and get it right when they sell. One bad call can wipe out a year’s worth of gains. And even when they do get it right, the performance rarely justifies the cost.
The Misleading Sales Pitch
Some advisors will tell you that active funds offer better risk-adjusted returns. That sounds reasonable, smoother performance for similar results. But when you look at the data, it simply doesn’t hold up. In most cases, active funds underperform even when accounting for volatility and consistency.
We’ve seen retirees get convinced their fund is performing well, only to realize later that they were being shown the wrong benchmark, like comparing a US fund to the Canadian market. When apples-to-apples comparisons are made, the underperformance becomes clear.
Why This Matters More in Retirement
In retirement, every dollar counts. The impact of underperformance is amplified because:
- You are drawing income from your investments
- You may no longer be adding new money
- The effects of compounding now work in reverse
The worst scenario is holding underperforming funds with no plan. We see this all the time: clients sitting in active mutual funds, getting no retirement income planning, no tax strategy, and no communication. Meanwhile, the advisor continues to collect fees.
Final Thoughts
You don’t need to try and beat the market. Just be the market. That means:
- Use low-cost index funds that track the market
- Keep fees as low as possible
- Focus on a retirement strategy that includes tax planning and withdrawal sequencing.
A well-constructed portfolio of index funds, combined with a personalized financial plan, will often outperform an active fund strategy, with less stress and less cost.
The data is clear. Most active mutual funds underperform. The fees are high, the odds are low, and for retirees, the impact can be devastating. If your advisor has you in active mutual funds and you’re not receiving clear retirement planning, tax strategy, or regular updates, it may be time for a second opinion.
If you’d like to see how your portfolio stacks up and whether you’re missing opportunities to improve your retirement outcomes, we’re here to help.
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