How many times has this happened to you? You're at a social function and the conversation turns to retirement savings investing. Pretty soon, people are comparing how well their investments are doing. As you might imagine, being an investment adviser and a pension fund portfolio manager, this happens to me a lot. However, I recently had an experience that startled me.

Richard, one of the guys I was chatting with at a party, asked what kind of returns I had made for my clients with my fund strategy during the year. I replied that the fund had returned an annualized gain of slightly over 14%, after management fees, for the 10 months that we had invested.

Richard countered with a smirk that his fund manager had made a 70% return. I raised my eyebrows and told him that was good - and suggested that maybe he ought to be managing my money. At that point we were interrupted and, as the evening went on, I began to wonder exactly how Richard’s fund manager had achieved his great return.

I caught up with him later on and digging a little deeper, the story looked somewhat different. Yes, the retirement savings account had made a 70% return on the fund, however, we were comparing apples and bananas.

While Richard’s fund manager had made 70% over the life of the fund, I had made 14% over the period of 10 months of the current year. In actual fact, he had only made 9% over the same period. That would be an apple to apple comparison when measuring my returns against his.

So how did I arrive at this you may wonder?. Since pension funds are unitized and starts counting from 1.00 for all fund managers, a 1.70 unit price over the period of 5 years meant the fund had grown from 1.00 to 1.70 which is a 70% increase. That is, a growth of 70% had occurred over the 5 (five) year period of the fund’s existence.  Therefore, calculating the annual growth of the fund over a period of say a year or 10 months will give a reduced percentage. Moreover, a better portion of the 70% might have occurred earlier, whereas current performance may just be entirely poor.

It is good to note that reference to the Unit Price as the basis for determining fund performance could be misleading at times and should be discouraged especially in the case where the funds have different commencement dates. Any newly licensed pension fund administrator starting to invest today will have its unit price at 1.00. This does not mean that it would not give a better return when current performance is measured against other funds. 

What is perceived to be a good performance today using the unit price may actually not be so. And a strategy that yields below average performance in the short term can lead to very good performance over a longer period.

So how do you make your investment decisions and where do you get your information? If you are like most people I know, you would look to the experts for explanations. It is also important to be aware that for every expert, there's an opinion and for every opinion there's an expert. I have a friend who says that opinions are like noses: everyone has one but you would not live in anyone else's nose!

The media and Pension fund marketers are always producing a frenzy using unit price’s total return. Marketers will use it as a tool to get their clients on board. I don't think this approach serves any good to either the investors in particular or the funds in general.

So, in the midst of all the hawking and hype for this fund or that fund, an investor still needs to make an intelligent choice. Investors must be able to track and identify long-term trends; they must be able to research funds for stability, reliability as well as track current performances. This gives a good head start.

Investors should always look past the surface and don't take any numbers thrown at them at face value.

Remember, most people returning from a weekend in Las Vegas will shout about their winnings and mumble about their losses.