Fees & Your 5 Common Questions to Investing

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If you own any mutual funds, index funds or Exchange Traded Funds (ETFs) you need to understand the impact of those fees on your investments. A tiny fee of 0.08% can cost you thousands of dollars over the long-term. Even when people save and invest diligently over their entire lives in funds, they unknowingly lose thousands in fees, hence they have to continue working past the age of 65 just to get by.

What fee?
All mutual funds, index funds and ETFs carry fees, the fee is known as the Management Expense Ratio (MER). The MER is used to pay for expenses incurred by the fund company for managing the fund. Even index funds cost money to manage, the fund company needs to cover the cost of staff, offices, IT systems, and marketing.

I don't pay fees, my company charges $0 commission for trading ETFs
The $0 commission is for buying and selling ETFs, and it's great you are able to trade ETFs for free. But the ETFs themselves still charge you the MER fee, which is like a hidden fee, because it's deducted immediately before you see any gains or losses.

Do I still pay the fee if my funds do poorly?
Yes, the MER fees is charged regardless of how well or how poorly your funds perform, let's take a look at two examples (where the MER is 2%):

Example 1: Your funds do really well and gain 5%
Your actual return: 5% - 2% = 3%

Example 2: Your funds do poorly and loose -4%
Your actual return: -4% - 2% = -6%

As you can see from the above examples, in good times your gain is reduced by the fee. In bad times your loss is amplified by the fee.

How much am I paying in fees?
How much you pay in fees depends on the MER, how much you invest, and how long you stay invested. Let's take a look at some examples:

Assumptions:
Yearly contributions, in addition to amount invested: $1200 ($100/month)
Average Rate of Return: 8%

In Canada the average MER is 2.2%, and the average amount held in a retirement account (RRSP similar to a 401k) is $100,000. Therefore the average Canadian over their lifetime could pay $642,212 in fees. I don't know about you but I could sure use an extra $642K.

How to save on the fees?
Don't invest in mutual funds, index funds, or ETFs, instead invest in individual stocks. But not just any stocks, only invest in quality stocks when they are undervalued (priced low). How do you find quality stocks? Just apply the 12 Rules of Simply Investing.


But I have questions and concerns about investing by myself
I understand you'll have questions about investing on your own versus buying a mutual/index fund, let's get to your questions right now:

1. Isn't it safer to buy mutual/index/ETF funds?
No it is not safer. Funds take your money and buy stocks with it. You can invest directly in stocks by yourself. At the end of the day with either option you are owning stocks. When you invest by yourself you only invest in companies that pass the 12 Rules of Simply Investing, with funds you are inadvertently buying stocks are are overvalued, have high debt, are not recession proof, are not profitable, and don't pay dividends.

2. I'm too scared, I don't know what stocks to buy.
The Simply Investing Course teaches you step-by-step how to select quality stocks. If you have no time for the Course, the Simply Investing Report applies the 12 Rules of Simply Investing to over 245 stocks each month for you. Simply Investing helps you build a resilient portfolio that provides you with growing passive income regardless of stock market conditions.

3. Isn't investing complicated?
No it is not complicated. Both my kids started investing at the age of 9. My goal is to make investing as simple as possible, I teach in plain English with no jargon. You do not need a degree in finance or accounting in order to be a successful investor.

4. But mutual/index funds give me greater diversification.
Yes, you will get greater diversification, some funds hold over 4000 stocks. But with so many stocks you can virtually guarantee that some stocks will be overvalued, have high debt, are not recession proof, are not profitable, and don't pay dividends. I've written about the risk of over diversification here.


5. Isn't investing time consuming?
No, you do not need to spend hours and hours researching which stocks to buy. The Simply Investing Course teaches you (without jargon) how to build a resilient stock portfolio that'll generate growing income for you each year regardless of stock market conditions. The course also comes with a simple checklist that you can use to find quality stocks that are priced low (undervalued). If you don't have time to fill out the checklist, the Simply Investing Report is an even faster way to get started. Each month in the Report, I apply the 12 Rules of Simply Investing to over 245 stocks and show you exactly which ones are quality stocks and are priced low. Remember you don't need to spend time every week or every month, you only fill out the checklist when you are ready to invest, for most people its about 2-4 times a year.

I'm here to help

I can help you to start investing today, why re-invent the wheel when you can learn from my 20-years of being in the stock market. I've witnessed first hand the ups and downs of the market, and I know what it's like to start investing your hard earned money. I created the 12 Rule of Simply Investing to help you get started right away, so you don't have to wait on the sidelines any longer. The sooner you start investing the sooner you will be on your path to financial freedom.

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1 comment

Ace your finance

Amazing post. Helpful.

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