My friends, I need to share a little simple math with you that most Canadians overlook when considering buying mutual funds inside an investment portfolio.
You see, the financial industry is the only place where your neighbour could be paying over 20 times less for their investments than you are.
The investment Funds Institute of Canada (IFIC) stated that, in 2016, the average mutual fund management expense was 1.24 %. This excludes trailing commissions, taxes and other soft costs charged to you as a client.
By investing in such mutual funds you are voluntarily paying an “asset manager” 1.24% of your assets in order to choose what stocks and bonds are best for you.
Here’s the problem: 96% of mutual funds do not match the market over a 10 year period.
Therefore, if you wanted to simply obtain the return of the overall market and invested inside an index tracking exchange-traded fund, you would outperform 96% of all active money managers over a decade.
Crazier yet? The cost of investing is the passive strategy. Many S&P500 Index investments can be purchased for as little as .06%. You read that right: six-one-hundredths of a percent, more than 20 times less than the active manager would cost. And yet, you would have over 96% chance of outperforming that particular manager's investment returns.
Let's imagine if some other common expenditures would cost 20 times more. A litre of gas would be $18. Your morning café latte would be $80. That monthly Netflix subscription would be $280, and your winter tires would set you back a whopping $16,000! I think you get the picture.
If you still think that the difference is trivial -- I mean, it's just over 1% right? Please understand that you would earn 38% less over a 30-year period.
If you plan on living for at least the next 30 years, I'd say this is worthy of your attention.
* Source: S&P500 Dow Jones Indicies LLC, IFIC.ca
Any views or opinions expressed on this website are solely those of the representative, and do not necessarily represent those of Harbourfront Wealth Management Inc. The information contained herein was obtained from sources believed to be reliable, however, the accuracy is not guaranteed.
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