Are Your Mutual Funds Costing You a Fortune? How to Slash Fees and Boost Your Savings
If you have money in a mutual fund, you could be paying up to 2.85% in fees every year. That might not sound like much, but for someone with $400,000 saved, it means your investments need to grow at least 6% annually just to break even after fees and inflation. Switching to lower-cost options could save you thousands of dollars each year.
What This Means for You
Many Canadians are unknowingly paying high fees on their mutual funds. The average management expense ratio (MER) for a bank mutual fund can be as high as 2.85%. In contrast, exchange-traded funds (ETFs) have fees as low as 0.2%. That difference of 2.65% each year adds up fast.
For example, if you have $100,000 invested:
- A mutual fund with a 2.85% MER costs you $2,850 per year
- An ETF with a 0.2% MER costs you $200 per year
Over 20 years, that difference could cost you tens of thousands of dollars in lost growth.
Who Is Affected
- Anyone with bank mutual funds — especially those in high-fee funds
- Canadians nearing retirement — you need your savings to work harder, not be eaten by fees
- People with $50,000 or more in savings — the bigger your account, the more fees hurt
- Investors who don't check their statements — many people never look at their MER
Currently, Canadians hold $2.735 trillion in mutual funds compared to only $860 billion in ETFs. But the trend is shifting as more people discover the cost savings.
What You Should Do
1. Check Your MER
Look at your most recent statement. Find the "Management Expense Ratio" or "MER." If it's above 1%, you're likely paying too much.
2. Consider Switching to ETFs
A simple diversified ETF portfolio could look like this:
- 60% equities — split between Canadian, US, and international stocks
- 40% income-producing assets — bonds or REITs (real estate investment trusts)
3. Rebalance Annually
Once a year, adjust your holdings to keep your 60/40 split. This helps manage risk and lock in gains.
4. Hold Some US-Dollar Assets
This hedges against currency risk. If the Canadian dollar drops, your US holdings gain value.
5. Consult a Fee-Only Advisor
Instead of paying a commission-based advisor, hire a fee-only advisor who charges around 1% or less. For non-registered accounts, this fee is tax-deductible.
6. Start Small
You don't have to move everything at once. Start with one account or a small amount to see how ETFs work for you.
Bottom Line
High mutual fund fees are quietly stealing your retirement savings. By switching to low-cost ETFs, you could save thousands of dollars each year and improve your long-term returns. Check your MER today, consider moving to a simple ETF portfolio, and consult a fee-only advisor if needed. Your future self will thank you.
Source: Greater Fool