Archive for April 2018

What you pay in Mutual Fund Fees

Mutual Fund Fees

Management expense ratio (MER)

All mutual funds and exchange traded funds (ETFs) charge their shareholders a management 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

Mutual funds
$2,350-2,500 per year
$60-$850 per year
Index investor
$330-$720 per year

Mutual Funds Fees

In 2016, the number of Canadian mutual funds that focused on US stocks that outperformed the index was zero. Investors in these funds are still paying the full MER. Remember, the average management expense ratio in Canada is 2.53%
It is important to note that all rates of return are published net of fees. For example, if the fund shows a 10% return, it actually earned 12.50% but the MER was removed already. You will never see this fee as it is taken off the fund usually on a monthly basis.

Front end load

This fee comes right off your investment. For example, if you are investing $10,000 and you pay a front-end fee of 2%, you will pay $200 for the purchase and $9800 will get invested. Paying a front-end fee means you have less money at work.

Back end load

A back end load is different in that you do not have to pay anything up front. You still pay the MER usually monthly. However, the mutual fund company has locked you into a 6, 7, or 8 year time frame where, if you leave their company before a certain time, you will have to pay a penalty for leaving early. The longer you stay with the fund company, the smaller the fee. Typically, you can still move your funds around within the same company without triggering fees.

Final Thoughts

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.
Some would argue, that for the 2.5% fee you are getting financial/tax advice from professionals, and that is fine as long as you understand what fees you are paying.

Don’t wait for retirement to enjoy life !!

Interesting Stuff on the Web Volume 28

Interesting stuff on the web is what I have read through out the week. I read a lot of articles and there is always a few that I feel is worth you reading. Often I have a different opinion than the articles I post on Interesting Stuff On The Web but they are all well written pieces. Here are the links. Enjoy !!


Build Your Wealth/Dividends Diversify “I always enjoyed reading about and studying wealthy people. In my younger years, I wondered what they knew that I did not. How did they build their wealth? What are their secrets? Are they happy?”

On a Fixed Income? Here’s The Best Places to Make that Dollar Stretch/lifepolicyshopper Retiring does not mean retiring from life. No, for many people, it’s the beginning of a new life. It’s the beginning of your bucket list. You finally get to do all the things you’ve been longing to do for years! Free from the office, it’s your time to explore!”

It’s not all doom and gloom for Canadian stocks/Financial Post  “It has been a tough run for Canadian investors, especially those who have stayed closer to home when it comes to their equity portfolios. So far, the S&P TSX is among the worst performing markets in the world this year; over a longer horizon, it doesn’t get much better, with Canadian equities having delivered a paltry 4 per cent annualized return over the past decade.”

PS: The less you spend, the less you need to earn!/Budgets are Sexy  “Three years ago I stumbled across a passage from Mr. Money Mustache that completely changed how I view my expenses. It came from an article I had read on many occasions prior – and is one of his most popular – but for whatever reason it never hit me as hard as it did then, perhaps because I wasn’t open enough to fully appreciate it at the time.”


Don’t wait for retirement to enjoy life !!