True Cost Analysis

How do you determine the cost of your invesments?  This is something most people don’t know how to do but ignoring this can lead to a significant reduction in your overall portfolio returns.   The example below will highlight just how much your fees impact your growth.

A mutual fund within a typical balanced portfolio will achieve a return of about 5%.  The average fee (Management Expense Ratios – MERS) on this type of mutual fund in Canada is 2.5%.

If we have a $100,000 portfolio invested in this type of fund over the next 15 years, using the above figures, it would cost you slightly over $90,000 in fees and lost opportunity.

Here’s the breakdown:

• At a 5% return, your portfolio grows by $105,125
• With an MER of 2.5%, you will pay $55,576 in direct fees
• Your Lost Return Potential because 2.5% is taken each year equals $35,185

In simpler terms, in order to earn $105,125.90 on your portfolio, it would cost you $90,761.86 (roughly half of your overall growth) in fees and lost opportunity.

Are you comfortable giving away half of your hard earned money especially when the typical fund manager doesn’t do any better than the market itself?  No doubt you deserve better.

To learn more about the fees on your portfolio, take part in one of our webinars where we can teach you how to look at your mutual funds.