Fees Eat 57% of Your Investment Gains

Fact: Did you know that over your lifetime you might be handing your advisor over half the gains made on your investment portfolio? That means he gains more from looking after your money than you do.

Did he tell you his ultimate cost was more than half your gains?

Did she convince you your cost is some innocuously low percentage?

I ran the numbers and they don’t look good.

    Did he tell you his ultimate cost was more than half your gains?

    The chart below illustrates the gains made on a $10,000 investment that earns 8% annually over the course of 30 years. The blue line illustrates the gains if no fees are charged. The red line incorporates a 1% fee. The yellow line a 2.53% fee.

    Why 2.53%? Because that’s the average MER for a Canadian mutual fund.

    Given recent fee pressures a 2.53% MER for the average Canadian mutual fund might seem high, but for all the recent talk about fees a huge amount of legacy assets still sits in old-school expensive mutual funds.

    The gains earned on the 3 portfolios after 30 years range from a high of $90,627 to a comparatively measly $39,416. That’s a 57% difference! That difference is all owing to fees that go to the consortium of well-suited people investing your money.

    Even if you only went from no MER to a 1% MER, you’d still be giving up 27% of your gains.

    But doesn’t your advisor earn that money? Not in today’s world. Through any number of online brokers, you can buy a ‘set it and forget it’ portfolio for 0.25%. If you want to get a little more involved, you can build your own portfolio for roughly 0.10%. Not quite ‘no fee’, but close.

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