Over the past several years, many investors have realized that they invested in mutual funds that were "riskier" than what they originally perceived. This tendency is partly due to the marketing efforts of financial institutions in advertising investment performances that are obviously favourable. We can easily be disappointed if we forget that the past performance of an investment is not a guarantee of its future performance.

There are two main approaches to making successful investments. The first is quick return and therefore implies high risk. Payoffs must be significant in order to offset the potential for significant losses.

The second approach is a long-term view coupled with appropriate investor expectations. Not everyone is comfortable with the double-digit losses some funds have had in recent years. The problem is they only saw the double-digit gains, and hastily began to form return expectations based on these. Few people factored normal market fluctuations into their expectations and were upset when stock markets lost value. Accepting short-term market fluctuations and maintaining a long-term approach should help to produce better average returns over time.

The first step to successful investing is to establish goals with realistic timeframes. Since goals can vary so much, making RRSP contributions for your retirement in 30 years will likely have very different investment objectives from your saving towards a house purchase in two years time. In the latter example, you must question your ability to accept any capital losses if the time to reach the goal is less than five years. Everyone can handle the "ups", but as you get closer to your goal, each "down" pushes the goal further away. The major North American Stock Markets have averaged a yearly growth of between 10 and 14 percent over a 50-year period. There are short periods (five years or less) where they have declined 30 percent or more.

After goals and timeframes are established, you must develop realistic expectations. For example, do not expect a 20% return in one year unless you are willing to accept a possible 20% loss during the same period. If not, then accept that a conservative one-year investment may not get you more than a three to five percent return.

The setting of expectations is best done with the assistance of a qualified financial planner. A planner should provide you with advice based on intimate knowledge of your financial situation, investment products, and markets in general. A financial planner will help you eliminate investment products that do not match you or your goals and thereby provide you with valuable advice over the long term.