Oh Canada, it’s time to cut the crap – investing that is.

Welcome to the first article for cutthecrapinvesting.com. I will try and keep this short and sweet. This is an investment site and investment guy on a simple mission. And it’s a simple story.

When it comes to investments, Canadians pay some of the highest mutual fund fees on the planet. Canadians are mostly invested in these high fee funds.

Total Expense Ratio by country of domicile, broken down by asset class
Country Balanced Bond Equity Full Sample
Canada 2.63 1.79 2.56 2.20
United States 0.89 0.78 1.11 0.81
Lowest Fee
(Country of Domicile)
0.72
(Austria)
0.55
(Austria/Finland)
0.64
(Netherlands)
0.64
(Netherlands)
Study Mean 0.98 0.91 1.29 0.95

Source: Khorana, Servaes and Tufano, Mutual Funds Fees Around the World

Fortunately there are many very simple lower fee alternatives available in Canada; but Canadians are a little slow on the uptake. Canadians are still piling monies into higher fee investment funds. Old habits are hard to break. Now some Canadians are beginning to discover lower fee investment options and are creating ETF (exchange traded fund) Portfolios at their discount brokerage house, or are signing up for Robo Advisors that create and manage well-diversified balanced ETF portfolios. And certainly many Canadians might seek complete managed portfolio solutions offered at major Canadian Banks such as those found with BMO’s Smartfolio or at Tangerine Investment Funds. There are also lower fee managed portfolio solutions offered by Mawer and SteadyHand. Let’s not forget the TD e-series index funds. There’s more than one way to skin the lower fee cat. Check out the ETF model portfolios and managed portfolio sections on cutthecrapinvesting.

So what are we waiting for? High fee funds = horse and buggy.

 

shutterstock_Buggy for linkedin

The investment world has created shiny new investment vehicles. It’s not just about the fees, it’s about the potential of greater returns. Now always keep in mind that past performance does not guarantee future returns. From the recent 2017 SPIVA Report that compares the returns of actively managed mutual funds to the returns of the index benchmarks for a 15 year period …

Only 6.06% and 2.45% of international and global equity managers, respectively, outperformed over the same time frame. For U.S. equities, 1.67% were able to outpace their benchmark over the last decade.

In the five-year time frame, 10% of international equity fund managers and 5.63% of global equity funds outperformed their respective benchmarks, compared to 2.2% of U.S. equity managers.

The SPIVA studies continue to demonstrate how the passive approach can outperform the high fee active approach. Canadians pay generous fees to active managers to beat the market. The reality is that they largely under perform the market. As an investor you can simply buy ‘the market’ with savings of 95% or more compared to the cost of those active funds. When’s the last time you saw a 95% off sale?

The TSX Composite is a big basket of Canadian companies – think of it as the Canadian stock market. You can buy that market with the click of a button or two. It’s that simple.  It takes little time and energy, and it mostly leads to greater returns. That’s why it’s called Couch Potato Investing. If only more things in life were this simple. Do less work, get better results on average. And it can be incredibly cheap. Compared to paying 2% or more in annual management costs, a Canadian investor can buy the Canadian or US stock market index ETF for as little as .05% in annual management costs. That’s not a typo. That’s one half of one tenth of one percent. That’s a considerable amount of monies that stays in your portfolio pocket.

Come on Canada, wakey wakey. As the Beatles sang “we’re talking bout a revolution”.

Join in. Please share this article and my website link with anyone you think might be interested in reducing their investment fees by 50%, 60%, 70%, 80%, 90% or more.

It’s a simple offer.

Cutthecrapinvesting@4x

Dale  (Chief Disruptor @ cut the crap investing)

cuthecrapinvesting@gmail.com

4 thoughts

  1. good luck with the blog and retirement. would love to see a future article on tax efficient retirement strategies for average canadians. i plan on retiring at the end of the year at age 55.5 on a small company pension and canadian dividends td,ry,bns,su,enb all in a taxable account. would be great to hear what other overtaxed canadians are doing. saw your link on seeking alpha.

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    1. Hi dean, thanks for that. I will certainly do some work on tax efficiency. But mostly I will call in the experts for guest articles and consultation. There are times of course when we want professional advice. For you this may be a time when that professional consultation is money well spent. I am a fan of paying a fee for service for specialized areas. Tax efficiency and estate planning are two of those common areas where many seek qualified help

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  2. Dale – congrats and good luck with the new blog. Since you asked, here’s a possible typo alert: a missing “d” after the word trade on the first mention of ETFs (“…are creating ETF (exchange trade fund) Portfolios…”). I think the most common usage is exchange traded fund. All the best.

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