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.






Comments

Popular posts from this blog

Today's Special: Humble Pie

You champion a project, fight for an idea, and then...reality sets in. That churning in your stomach isn't butterflies, it's the realization you've missed the mark.  Pride will puff up your chest, and kick in the "defend at all costs" instinct. But arguing with the umpire never changed a call. Admitting you're wrong isn't a sign of weakness. It can strengthen your professional standing. In a world obsessed with the illusion of infallibility, the courage to adjust course is a breath of fresh air. It shows you're confident enough to be wrong, and adaptable enough to learn from it. Do your research, think critically, and stand behind your decisions. But when the data whispers (or screams) otherwise, don't be afraid to swallow that slice of humble pie. Be the first to acknowledge. Don't wait for someone to point out your mistake. Be open, take responsibility, and most importantly, focus on what you're going to do to address it. Don't dwell ...

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...

Starting Really Really Small

On your desk is one of the most intimidating sights known to man. A blank page. The prospect of filling it up with anything resembling decent seems insurmountable. Staring at the long road ahead fills you with anxiety and dread.  The first step is the most difficult. So we procrastinate. We " research ", we " prep ", we " plan ". We do everything except tackling the problem. We avoid the pain for as long as we can.  To make a blank page less intimidating. Tear it in half. There, half as scary, twice as easy. Still too much? Do it again. And again. Keep doing it until the task is so small that it's too easy not to do.  Getting starting is the hardest part. So make the hardest part as easy as possible. This doesn't guarantee amazing results, but it gets you in the game. You can't win if you don't play.