Today we’ll begin a new series where we’ll show the process of investors moving out of high fee mutual funds and into some sensible low-cost ETF portfolio solutions. A few readers have stepped up to offer their real-live scenarios. They feel trapped in mutual funds and offer that they’re not sure how to make the switch. By providing examples, readers can witness the comparisons between investment options and the step-by-step process of transferring from mutual fund providers to the ETF options. We’re moving out of mutual funds on the Sunday Reads.
First up on the mutual fund chopping block is Investor C. He is invested in some very high-fee and poor-performing AGF mutual funds. Further compounding the problem is that Investor C is in DSC mutual funds. Those funds can create some additional and very high fees should an investor decide to leave those funds within a few years of the initial investment.
Investor C has also been switched (by the advisor) from DSC fund to other DSC funds triggering those high fees. This will not be a simple process thanks to the DSC fund status.
Here’s a must-read on DSC fund status in Canada and a primer on how they work.
There are a few AGF funds in the mix, but here’s one example where Investor C is mostly in the DSC version or class.
It is a balanced fund that is heavily weighted to the U.S. stock market. The management expense ratio is a shocking 2.58%.
While the fund has delivered average annual returns of 7.3% over the last 10 years, the fund would greatly underperform a sensible low cost ETF portfolio.
An ETF portfolio with the same asset allocation would beat that AGF offering by 3% annual or more. I will be back with a dedicated post on the performance comparisons for all of Investor C’s AGF holdings vs the ETF portfolio options.
Fees are wealth destroyers
We’ll start the series with ‘the why’ – the massive amount of wealth that is eaten up by high fees. As Larry Bates, the author of Beat The Bank reminds us, those fees are wealth destroyers.
Check out the fee calculator on Larry’s site.
Stay tuned, as we help Investor C break free of those crap funds on Cut The Crap Investing.
That’s why this site exists. That is the mission.
The Weekend Reads
Here’s my MoneySense weekly.
Also on MoneySense from financial planner Jason Heath, can you change your mind after taking early CPP?
On Findependence Hub John DeGoey writes that investors never saw it coming in 1929 either. It is true that we operate with a recency bias. John is certainly in the bearish or cautious camp.
I am trying to warn people, but most seem inclined to ignore me. After all, bearishness is bad for business. My impression is that most people are feeling satisfied and going about their lives without much concern for the things I just laid out.
John does lay out a few simple ideas on how to prepare or hedge against a possible ‘big one’ with respect to a stock market correction.
And Mark on My Own Advisor offers his July income update. Mark creates over $30,000 in annual dividend income. Here’s the income broken down in hourly terms.
- We earn $2.54 per hour of every hour of every day (income/8,760 hours (24 hours x ~365 days)) even in our sleep.
- Part of the portfolio is essentially a job: earning $10.71 per hour (income/2,080 hours (40 hours x 52 weeks)). Then again, some of that income is 100% tax-free (thanks TFSA).
In fact, when it comes to Telus in particular, we own enough shares such that when dividends are paid those dividends easily cover our cell phones bills every month!
I recently updated the performance of our Canadian Wide Moat stocks.
GenYMoney also offers a July Dividend update.
My long-term target is at least $35,000 annually of dividend income (definitely not a big deal if I don’t get this, my main goal is a 7 figure portfolio), or about a $1,000,000 dividend/investment portfolio with a conservative 3.5% dividend yield.
This last month I reached (well temporarily) 75% of my 7 figure investment portfolio goal.
There’s some solid passive growth in July from Rob at Passive Canadian Income.
There’s more than dividends
And Million Dollar Journey reminds us that there’s more than dividend to consider. Here’s investing in Canadian value stocks. In that post, you’ll find some Canadian and U.S. stocks for consideration.
While the big Canadian dividends are popular with self-directed investors, keep in mind that greater diversification and risk considerations are more important. You might consider the approach within the greater balanced portfolio.
And we should perhaps also consider (and be prepared for) all economic conditions and possibilities, here’s the Permanent Portfolio. I’ve updated that post to include how one might go beyond using gold for inflationary periods. Also, you’ll find a simple fix for using an all-in-one asset allocation portfolio such as iShares one ticket offering and turning that into more of an all-seasons portfolio. It can become Permanent Portfolio’ish.
On the Maple Money podcast you can get smarter about loans and credit.
Shopify vs Amazon
Here’s a very surprising chart from that post …
That amazing tech company continues to deliver for investors. It is also driving the returns of the core Canadian index funds that you’ll find on the ETF Portfolio page.
On the lighter side
At the Freedom 35 blog, does astrology (aka your birthdate) affect your personal finances? From that post …
For example, roughly 9% of people in the general population are Libra. However, Libras make up nearly 20% of billionaires.
Meanwhile Sagittarius accounts for about 8% of the general population, but only 1% of the super rich.
Thanks for reading. I know you’ll enjoy the moving out of mutual funds series.
Support your portfolio and 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.
Consider Justwealth for RESP accounts. That is THE option in Canada.
At Questrade, Canadians can buy ETFs for free.
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 1.25%. You’ll find some higher rates on certain GICs. They now also offer U.S. dollar accounts.
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