How Much is Your Mutual Fund Costing You?
Michael over at Michael James on Money recently posted a great article on the cost of your investments. Rather than looking at the top ten attributes of a great financial adviser, or top ten ways to invest, you should be able to answer this question first and foremost:
How much are my mutual funds costing me each year?
You can read the complete article here, however I’d like to share with the first two paragraphs from Michael’s blog post: “Despite my enthusiasm for do-it-yourself investing, I understand that most people need help. The problem is that far too many investors who seek help end up just being sold expensive mutual funds. This got me thinking about what is the minimum that investors need to do for themselves; what one thing can they not afford to leave to their advisers?
Here is my suggestion: All investors should be able to work out for themselves how many dollars they pay per year in fees across their portfolios, including management expense ratio (MER) costs, fund loads, commissions, and any other costs.”
I’ve found an excellent online Mutual Fund Fee calculator that you can use to quickly determine how much your mutual funds are costing. This Mutual Fund Fee calculator has a database of 100’s in not 1000’s of mutual funds sold in Canada, simply chose your mutual fund company, select your mutual fund, and fill in the remaining information. As an example I entered the following values in the calculator (I randomly picked a popular actively managed fund from one of the five large banks in Canada):
• Load: Front-end load of 0%
• MER: 2.26%
• Other fees: $0
• Past Return: 7.68%
• Investment amount: $50,000
• Investment Held for: 15 years
The calculator then displayed the costs as: $9990.28 in fees. This means 19.98% of your initial investment is lost to fees. Remember costs take a huge toll on your returns, I outlined this fact in a previous post (Simply investing vs Mutual Funds).
I totally agree with Michael’s closing remarks on this topic:
“No doubt we could all come up with a lengthy list of things people should understand about investing, but given that so many investors start with so little knowledge, I recommend learning how to identify costs as a starting point.”
So go out there and figure out your costs, are they worth it?
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