Why am I here? Not in an existential pondering as in why am I here on this earth. But why am I here on this blog and here, on the internet? Why? To help Canadians find a better way and a simpler and more cost effective way to build wealth. And mostly the mission has an ‘enemy’ – high fee mutual funds. Those high fee mutual funds are the Crap in Cut The Crap Investing. It appears that Canadian investors need another invitation to Cut The Crap. Canadian mutual funds just had a record quarter. That’s why we’re ditching our Canadian mutual funds on Weekend Reads.
Thanks to Clare O’Hara for breaking the bad news in the Globe and Mail. (paywall)
And from that Globe and Mail post …
Canadian asset managers saw first-quarter sales hit their highest level since 1997 as investors rushed to invest after a year of strong returns.
Mutual fund sales have surged in recent months with $41.9-billion in net sales recorded within the first three months of the year, compared with net sales of $39-million in the same period in 2020, which saw high levels of redemptions, according to data released from the Investment Funds Institute of Canada.
The surge also surpassed the bestselling year on record, which was set in 1997 with $22.7-billion in net sales for the first three months.
Hopefully this is just a last gasp of breath for a fading industry. ETFs have been outselling mutual funds for a couple of years.
And great timing eh? Advised mutual fund investors where ditching their funds a year ago, and now that the markets have had an incredible run, they’re back, adding to their portfolios. It is one of the most reliable trends in the investing landscape. Mutual fund investors will get the timing wrong. Too many of them like to invest at the top of the markets and then sell at or near the bottom.
But high, sell low, right?
In addition to some bad investor behaviour, mutual fund investors face the ongoing drain of high fees. As Larry Bates the author of Beat The Bank often reminds us, fees are a wealth destroyer.
Have a read of – Don’t give away half of your investments – Beat the bank.
Canadian investors often face the bad behaviour of ‘advisors’ as well. But again as Larry and others will point out, most Canadians don’t have an advisor they have a mutual fund salesperson. When I was an investment advisor with Tangerine Investments I would perform investment audits for clients – on their (outside of Tangerine) mutual funds.
It was not pretty. A large majority would have been better off in GICs.
Making your savings work harder at EQ Bank.
Their advisors had been creating additional fees (payment to the advisors and mutual fund providers) by continually switching funds. That would trigger additional Deferred Service Charges.
The sad reality is that most Canadians pay high fees and are offered no advice, or bad advice.
Not all mutual funds are bad.
While high fee mutual funds are mostly bad, not all mutual funds are high fee and not all mutual funds are bad. You’ll find some good options on that post from Jonathan Chevreau. I would never argue with anyone who invests with Mawer or Tangerine and a few other select shops.
And even a big bank can offer some ‘decent’ stuff. The RBC mutual funds are not too bad. And if you walk into an RBC branch you are more likely to get access to a real and qualified advisor. That said, if you are of modest means, you can likely do better than RBC.
How do we ditch our mutual funds?
Most Canadians want and need advice and managed portfolios. In that case, the answer for the switch from high fee mutual fund crap can be the Canadian Robo Advisors. Total fees will be in the range of 0.40% to 0.80%.
With the Robo Advisors you have access to low cost managed portfolios. Investment advice and even financial planning is available at a few of the shops.
Justwealth. The Canadian Robo Advisor that knows when to get personal.
The Robos are very human.
One ticket, that’s the ticket.
If you are comfortable pressing that buy button you can access very good globally-diversified portfolios with fees in the range of 0.20% to 0.25%. Yup, you can lower your fees by about 90% from that mutual fund stratosphere.
Cut your fees by 90% with one click. Incredible.
The all-in-one asset allocation portfolios include these offerings. These are game changers that should put high fee mutual funds to rest.
iShares one ticket portfolios.
Vanguard one ticket portfolios.
And on the tax-efficient front, Horizons one ticket portfolios.
That Vanguard post will help you determine which one ticket might be most appropriate for your goals, time horizon and risk tolerance level.
You can also build your own ETF Portfolio. That will allow you to potentially reduce your fees even further, and you’ll have more control over asset allocation and a tax efficient portfolio arrangement.
You might also have a read of … The new balanced portfolio.
Canadians have a choice. There is no reason to pay 2% and more for your investments. You can move to superior investments with much lower fees. You can move to a better place to invest. From my observations and calculations you could retire with a portfolio that is twice or even three times as plentiful.
That means a retirement that is three times as nice.
When ditching your Canadian mutual funds please consider all tax considerations. If you have taxable accounts you will have to consider taxable gains and losses. If you have taxable accounts, and need help, I’d suggest that you call on Justwealth. They can help you plan those moves and can offer a tax efficient set of portfolios moving forward.
If you have any questions about ditching your mutual funds fire away in the comment section. Or use that contact form. And please share this post. Friends don’t let friends pay high fees.
On the basics of financial planning …
Oh look I just found $888,000 in your coffee.
For the greater financial plan you can receive conflict-free advice by way of an advice-only planner.
The Weekend Reads.
Covering the week on the markets, here’s my MoneySense column. Can you guess the main theme? Canadians are still not ‘getting it’. Fund managers too.
That said, on the energy front we see a sad and troubling development, the oil sands becomes Canada’s number one hot spot for COVID. Safety first. I hope the businesses take the appropriate steps to protect workers.
In that MoneySense post I also look at Warren Buffett still sitting on over $140 billion in cash. That is a great stock market correction hedge IMHO. Also in that post, FAANGM is where they keep the profits, with an incredible chart. Plus sell in May and go away? and a look at Elon Musk’s ridiculous compensation package. He’s making more than, well, Tesla’s total profits. Good deal if you can arrange that.
On Findependence Hub, gold is still trusted over bitcoin, but the gap is closing.
On My Own Advisor Millennials want to FIRE at 50. Of course FIRE is an acronym for Financial Independence Retire Early. Karla and Toby are 54 and 56. Can they retire soon with $1.2 million in the bank and no company pensions?
GenYMoney has a look at the Core vs ETF Tangerine portfolios.
Introducing the Tangerine Global ETF Portfolios.
Savvy New Canadians looks at the top Ether ETFs in Canada.
On Million Dollar Journey an update on the top Canadian Dividend ETFs.
The Sunday Investor is hunting for value stocks in the US.
On TawCan Bob has a look at his updated goals and resolutions for 2021.
On A Wealth of Common Sense, average US stock market returns are anything but average.
Maybe 2019 and 2020 just don’t make sense?
Mr. Buffett says … he’s not buying.
Thanks for ditching your Canadian mutual funds on Weekend Reads. We’ll see you in the comment section. Don’t forget to follow this blog. It’s free.
Cut your fees, support Cut The Crap Investing.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me pay the bills for this site. That will allow me to keep this site free of ads and easy to read.
You will also earn a break on fees by way of many of those partnership links.
I also have partnerships with several of the leading Canadian Robo Advisors such as Justwealth, BMO Smartfolio ,Wealthsimple, Nest Wealth and Questwealth from Questrade.
Consider Justwealth for RESP accounts. That is THE option in Canada.
At Questrade, Canadians can buy ETFs for free.
I use and I’m a big fan of the no fee Tangerine Cash Back Credit Card. We make about $55 per month in cash back on everyday spending.
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are still at 2.3%.
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Dale
I won’t tar them all with one brush. For the hard of thinking, or those too lazy to climb onto the low slope learning curve of DIYing with all-in-one ETFs, Mawer and TD e-funds remain a decent option.
Yes indeed Rob, there are a few good options in the mutual fund world. Unfortunately most are in the crap.
Dale
Thanks for the mention. A lot of people I talk to (in real life) just want to hand their money over to someone and not have to deal with investing (hence why mutual funds still prevail). It boggles my mind but I guess I am in a personal finance bubble of influence.
Yes Canadians are creatures of habit in regards to mutual funds, and surprisingly, retiring with much more wealth is a low interest category. I know we’re both working to try and change that. Thanks for stopping by as always.
Dale