Monday, February 7, 2011

The Loonie Bin: MERs Are Killing Your Savings

The Loonie Bin: MERs Are Killing Your Savings

MERs Are Killing Your Savings


Management Expense Ratio. When you purchase mutual funds, it's listed in the fine print. When I was 18, I began purchasing mutual funds because I was told it was the best way to save for retirement from an advisor. He never mentioned anything about a MER so I had no idea what they were or what it was costing me. I bought several more mutual funds over my life and none of the "financial planners?" told me what the MERs were either. Most mutual funds charge 2-3% and you never see the fee come out of your account, it's subtracted from your contributions.

So you think that's a fair price for someone to manage a mutual fund? Well to put it in perspective, let's say your have $100,000 in a mutual fund that has a MER of 2.5%. You would have to pay $2500 in fees, so if your mutual fund made 6%, you would only have made 3.5% or $3500 on that investment. To me that defeats the purpose of investing when your return is almost halved due to fees. Majority of funds are rebalanced once a year. All the companies that don't do well are sold and new companies are added. Sounds kinda easy if you ask me. Anyone with a desire to learn can invest on their own and no one is going to make more money for you then yourself.

If you took matters into your own hands, and invested in Exchange Traded Funds, majority of the fees would be .06% or $600. You could go even further, and invest in the companies yourself, and pay close to $300 in fees. If you do have over $100000 then it would probably cost close to $100. And after that, rebalancing your portfolio would probably cost $60 a year, depending on how much you sold and how much you purchased.

What stocks should you purchase? The ones the mutual funds own. Just have a look and see what they are investing in, and copy the most lucrative funds. I myself aim for blue chip dividend payers, but then again I'm biased. It's not hard at all, if you take some time and learn about investing, it will change the way you see the world. Events you would normally not care about half way around the world, will influence your investments the following day. If more people invested themselves, then maybe the world would be a better place.... err probably not.

I made this animation in an attempt to show a day in the life of a mutual fund manager. Enjoy!

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