The Finance Blogger


Are Mutual Funds too Expensive

Are Mutual Finds too ExpensiveAre Mutual Funds too Expensive ? This chart would certainly appear to support the case that they are in fact expensive and can have a significant impact on your savings plan or your retirement over the long term. The chart on the left demonstrates that if you had $100,000 to invest and kept this investment in mutual funds over a 10 year period, your investment would be worth approximately $165,000. Sounds pretty good right! Note that this assumes average returns and does not reflect the ups and downs of the stock market. However consider that the mutual fund manager is deducting 2% every year regardless of how the mutual fund actually does in the market.

If you were invested in exactly the same investments that the mutual fund was your investments after 10 years would be worth approximately $195,000 or $30,000 more than they are. MER is taking $30,000 over 10 years as fee’s or an average of $3,000 a year of your money.

Why Are Mutual Funds too Expensive?

Most people use mutual funds because they want so called peace of mind. They do not want to worry about their investments. The sad reality is that most funds are managed by people who have huge portfolios and are relying on the averages. If the markets are down, so are the mutual funds and so is your investment. The manager still gets paid the 2% regardless. You lose in a down market because your investments are worth less. You still have to pay the MER! The answer to the question, Are Mutual Funds too Expensive, is yes!

There are funds that charge smaller MER’s, however you usually get what you pay for. If you are not interested in taking the time to manage your own investments, they you probably should stick with a well managed low risk mutual fund. An investment adviser can assist with selecting the correct one. If you do not want any risk and do not want to pay MER’s, then GIC’s are the oly way to go, however the income level on GIC’s is very low, so again you lose from an income perspective.

Invest in Blue Chip Companies

We¬† believe that investing in blue chip companies with a long record of paying dividends is the way to go. You receive the dividend income and over time the stocks usually appreciate in value as well. At least you will not pay MER’s.

Take a look at a well performing dividend income mutual fund and invest directly in the same stocks. You probably will not go wrong over the long term. Make sure you are diverse. Monitor your investments on a regular basis to take any corrective action that may be required.

For more information about common sense investing, click here.

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