Archive for investing

Management Expense Ratio (MER)

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

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

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.

 

Being Bearish Is Not Profitable

Being Bearish Is Not Profitable

It’s easier to find financial experts views that are extremely bearish than it is to read bullish views. Since 2009 it has not been profitable to be bearish, and yet these smart economist have been calling for a crash. A broken clock is right twice a day and when the next bear market happens all the economist that where bearish will be right.

There are soooo many reasons that the market shouldn’t be hitting new highs.
Valuations, all the crap in Europe/Japan/China, Trump, rising interest rates, tapering QE, natural disasters, Rocket Man blowing countries up, and that’s just a few.

If history repeats, we will eventually see a bear market and a recession. A recession is typically defined as a decline in GDP for two or more consecutive quarters.

 

US Recessions (1945 to Present )

Recessions/GDP Contraction/Length to next
                                                            Recession
Feb 1945-Oct 1945      -12.7%            3 years, 1 month
Nov 1948-Oct 1949     -1.7%              3 years, 9 months
July 1953-May 1954     -2.6%             3 years, 3 months
Aug 1957-Apr 1958      -3.7%             2 years, 0 months
April 1960-Feb 1961     -1.6%             8 years, 10 months
Dec 1969-Nov 1970      -0.6%             3 years, 0 months
Nov 1973-March 1975  -3.2%             4 years, 10 months
Jan 1980-July 1980        -2.2%            1 year, 0 months
July 1981-July 1982       -2.7%             7 years, 8 months
July 1990-March 1991   -1.4%            10 years,0 months
March 2001-Nov-2001  -0.3%              6 years,1 month
Dec 2007-Jun 2009        -5.1%              ???????????????

Average: 11 months   -3.2%    4 years, 8 months

 

My Portfolio

Since early 2017, I have been on the sidelines scratching my head as the equity markets have been going up. I have been holding more cash than I would normally. I haven’t sold anything I just haven’t purchased anything new and have been keeping my distributions in cash instead of reinvesting it. (Not smart).
I am obviously not very good at timing the markets. Not that I am really trying, I thought I would wait to see how the new Trump administration would do, and then it was summer and you know the saying “sell in May and go away.” The Fall usually is fairly volatile with big swings in the market.

I’m now looking at investing the cash we have in our portfolio when the market is hitting all time highs. We have a long time horizon and timing the market is absolutely pointless. What’s really important is saving regularly, diversifying, keeping cost low, and stay invested.

 

Don’t wait for retirement to enjoy life !!