Are investment fees draining your portfolio?

Saving just 2% on fees could earn you thousands more dollars over the life of your investments

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From the January 2016 issue of the magazine.

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Whatever you’re paying, there’s a good chance it’s too much. Morningstar’s 2015 Global Fund Investor Experience Study assessed Canada with a “D minus” grade in the fees and expenses category. Although that’s an improvement over our previous “F” grade, we’re still the worst of the bunch compared to the other 24 countries in the study. Canada’s median asset-weighted expense ratio for equity mutual funds is 2.35%, a far cry from the many sub-0.1% fee exchange-traded fund options available for North American equity investors. It’s why you should really take some time to make sure you’re getting the best fee available. Assuming your mutual fund and ETF investments are earning identical market returns, saving 2% per year in fees could make a huge difference over an extended period. Case in point: Just a couple of percentage points on a $100,000 investment could mean the difference between having $760,000 or $1.3 million portfolio after 30 years. Take a look: Over 30 years, you’d have earned $565,542 more!

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4 comments on “Are investment fees draining your portfolio?

  1. Saving 2% on MERs is entirely possible for a knowledgeable DIY investor. But the vast majority of people are really not interested in or capable of building a proper investment portfolio. When self-destructive behaviours are added into the equation (people have proven time and again to make emotional and irrational investment decisions), most people are still much further ahead using “high fee” mutual funds because that normally comes along with the advice of a Financial Advisor who can add value by advising on areas that go above and beyond fund selection.


    • I am not sure any advice a financial advisor might provide is worth $500,000+ over a 30 year time frame. You would be wise to invest in a financial planning course of some sort or take some time to do some research and attempt to learn on your own. The Internet provides a wealth of information these days and always remember, no one cares about your own money as much as you do.


  2. I always here this with annual management and annual investment fees but never with compound interest investments that best work with RRSP’s, RESP’s, TFSA’s.

    What I mean is there are Canadian bonds and provincial bonds that are pretty safe but have big difference in annual interest rates. A simple example is 30 year Canada bonds of 2.04% versus say an Ontario 3.3%, Quebec 3.45% 30 year bond.

    These are compound interest bonds known as strips, zero coupons. The difference after many years can be huge. Say someone has maxed out their TFSA at $46,500 in 2016 and the difference in compound interest at maturity is 81.57% or 93.36%.

    Simply put, their $46,500 TFSA would be $37,932.84 or $43,412.40 more interest in 30 years. Maxing out TFSA’s and RRSP’s to the best of one’s ability and this 1.26% or 1.41% compounds to 2.7192% or 3.112% every year in extra interest. This with regular contributions will add up to minimum $250,000 per person by retirement.


  3. You can make the same comparison with corporate bond rates that pay 4% to 4.7% and may make sense that a mixture of 2.5%, 3.0% compound GIC’s, provincial strips, zero coupons 3.45%, corporate strips, zero coupons 4.0% to 4.7% to get a higher blended, diversified compound interest rate.


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