Friday I read an article at GenYMoney Don’t Be Afraid of DIY Investing: It’s Really Not That Scary about her sister and a nice mutual fund lady and then Saturday morning on A Greater Fool Big Alpha Garth turner wrote an article on how Canadians own $1,467,000,000,000 in High cost mutual funds. Both excellent reads. I thought I would do a breakdown of the cost of MER on your portfolio’s.
When I started investing in the early 90’s we started investing in mutual funds. IN THE BEGINING there was very little talk about index or ETFs. Later as our portfolio grew we switched to a more passive/cheaper couch potato portfolio. My Portfolio Structure.
Management expense ratio in Canada (MER)
All mutual funds and exchange traded funds (ETFs) charge their shareholders an expense ratio to cover the fund’s total annual operating expenses. This can include costs such as administrative, compliance, distribution, management, marketing, shareholder services, record-keeping fees and other costs.
You can expect to pay in Canada
Equity mutual funds is 2.35%-2.5% for actively managed funds.
Low cost ETFs 0.06% and for the fancy Hybrid ETFs up to 0.85%.
Index funds MER 0.33% up to 0.72%
What this means for a $100 000 portfolio
$2,350-2,500 per year
$60-$850 per year
$330-$720 per year
As you can see MER can make a significant difference to your portfolio performance over the years. With ETF investing there is a cost per trade and that can add up to significant dollars especially with a small portfolio or if you do monthly contributions. Index funds work well for investors with smaller accounts (under $100,000) since you do not have to pay transaction fees per trade and can easily make small monthly contributions.