Thursday, April 29, 2010

Avoid Management Fees Like the Plague

When I walked into RBC today there was a poster advertising their RBC Monthly Income Fund. It said a $100,000 investment can provide you with $375 a month in Income.  I can see how this Interests some people especially seniors.
Canadian asset management companies make a kings ransom off management fees. I understand that some people do not have the time nor skill to manage their own investments. Lets say you don't want to manage your money yourself, because you don't have the time, experience, scared to screw it up or whatever excuse that is fine. But what I can not understand is holding a high MER mutual fund when there most certainly is an equivalent ETF that will charge a fraction of the management fees.

I don't want to hear the an excuse like I'm waiting for my mutual funds to recover before I switch to ETF's.  When your mutual fund recovers so will the ETF. The two move together. In fact funds compare themselves to the index they follow and ETF competitors to see how well they achieved their stated objectives which is to track their benchmark as closely as possible.

I do not own any mutual funds or ETF's myself,  but I do hold shares in Canadian asset managers (AGF and GS) the poeple who manage mutual funds. Because I think asset management is a good business with outrages fees that people seem to be happy to pay.

Let us take a look at a few mutual funds offered by RBC and compare them to their equivalent ETF's

RBC Canadian Short-Term Income Fund     MER: 1.16%
iShares DEX Short Term Bond Index Fund (XSB)     MER: 0.25%

RBC Canadian Dividend Fund     MER: 1.70%
iShares Dow Jones Canada Select Dividend Index Fund (XDV)  MER: 0.5%

RBC Jantzi Canadian Equity Fund MER: 2.04%
iShares Jantzi Social Index Fund (XEN) MER: 0.50%

If I were to tell you, How would you like to make a guaranteed 1% more on your portfolio without taking on more risk. Its going to sound like a scam. That is because you are being scammed.
RBC's mutual funds MER's are actually decent for the mutual fund industry. Mutual funds have more costs than ETF's since they have to deal with deposits and withdrawls. ETF don't since you and sell the units on the market.

go sell your mutual funds right now and buy some ETF's.

No comments:

Post a Comment