Skip to main content

Dude, Where's My Fees?

My introduction into investing was with a big bank mutual fund. I was in university and knew as much about investing as Jon Snow knew about anything. I had some idle savings and was told it was the smart thing to do.

At the time, I had one bank for my credit card, checking account and savings account. Naturally I went to the same bank for investing (they'll take care of a loyal customer, right?). I sat down with an advisor, signed some forms, deposited my money and bam! I was an investor. The process was quick and I left knowing as much about investing as when I walked in.

During the setup process, there was no mention of fees, and no fees were to be found in the statements neither. Innocently, I assumed there was no fee. This is what most people think about their mutual funds. Nope.

The fees are found buried in your prospectus - the fund's terms and conditions. And like most terms and conditions, they're long, complex and you didn't read them. The fees are known as the management expense ratio (MER). The MER is paid out of the fund assets, never to be seen by you. You pay indirectly through the reduction of your investment's value.

Mutual funds typically charge 1% to 2%. This might seem like a small percentage but will have a huge impact over time.

We can demonstrate this with an example:
  • You invest $10K into a mutual fund
  • MER is 1.5%
  • The fund grows for 30 years, earning 7% a year
With no fees, your investment after 30 years would be worth $80k.

Add the MER of 1.5% to the picture, you'll be left with only $50K.

The 1.5% fee would have cost you $30K, which is 40% of your potential investment!

It is important to understand the impact fees have on your investments. Obviously you can't expect folks to work for free but you should ask yourself it's worth it. Are you receiving anything of value? Advice on budgeting, taxes, estate planning, anything?

In my situation, there was no advice and the cost wasn't worth it. If you are going to be paying fees, consider the impact they'll have to your long term wealth and make sure it's worth it.


Popular posts from this blog

The Art of Giving Feedback

Constructive feedback is an awkward affair. You don't want hurt feelings, but recognize the importance of honesty. You've tried the classic "hoping things will get better on its own" and unfortunately it hasn't played out. When giving feedback, here are a few things that I try to keep it mind. Start with empathy. Step into their shoes and understand their story. If you don't know, ask. Be genuinely curious. Feedback is a dynamic affair. Shared communication with a shared goal towards progress. Take the emotion out of it. Focus on the situation, not the person. Focusing on the person adds unnecessary weight to an already emotionally-bloated event.  Be specific. Give clear examples. Vague feedback equals dismissed feedback.  Doing above won't de-awkward things fully, but it will dampen it and increase the chance of better outcomes. 

Bias For Clarity

Bias for action. Gets things done. Go-getter. Traits companies big and small look for. And for good reason, you're being hired to do things! However, action is a secondary step that often overshadows the primary step, direction.   Clear direction is the foundation that enables our actions to takeoff. Without it, we're stuck in the mud.  Striving for clarity is an underrated skill. Having the courage to ask ( seemingly ) obvious questions, and to check in, making sure we're all on the same page. "O bvious " questions are a low risk, high reward way to add value. At worst, you'll add confidence to our actions. At best, you discover a misalignment that saves us from a dead-end.  The more people, the more clear we need to be. The bigger the initiative, the bigger the risk of reaching the finish line, only to realize expectations were off.  Success is always uncertain. But we can be certain about what we want and what everyone's job is. Things that can be clea

Negative Feedback, Positive Lessons

In the battle against plastic bags, a five-cent tax was shown to be much more successful at deterring usage than a five-cent credit for bringing your own bags. Carrots satisfy but sticks sting, and they sting hard. So we default to the less painful choice of avoiding loss. Loss aversion impacts the way we process information. A 2019 study  invited participants to learn through a series of multiple choice questions. Each question only had two options to choose from. Whether guessing correctly or not, they would still learn the right answer.  Despite the identical learning opportunity, participants were much more successful at recalling the answers they guessed correctly than those they got wrong.  "You're right!" feels good. We savour the moment, analyzing every detail.  "You're wrong!" stings. We want to quickly forget, dismiss, and move on.  When we succumb to loss aversion, we miss opportunities to learn. Failure is part of the process. We'll experie