Showing people how much they pay for investment products and advice using a percentage fee is efficient, but sterile.
Paying a management expense ratio of 0.25 per cent for a fund is better than 1.75 per cent – we all get that. But it’s so much more powerful to find out you paid $353.34 in fees on a $10,000 investment for 10 years instead of $2,306.32.
A reader recently asked how to calculate the dollar cost of the MER for an exchange-traded fund. Answer: Try the mutual fund fee calculator from the Ontario Securities Commission’s GetSmarterAboutMoney website. Select funds you actually own, or plug in your own data points. Then, prepare to be amazed at how fees add up in dollar terms.
Securities regulators have for years required investment firms to provide annual accounting to clients of how much they pay for advice. Included in these reports are mutual fund trailing commissions, an MER component that goes to advisers and their companies to cover the cost of client service. Not included is another big component of MERs - the cost of managing the stocks and/or bonds held within a fund.
Regulators are talking about a fuller report on fees that would include the total cost of fund ownership. Meantime, there’s the GetSmarterAboutMoney calculator. Let’s compare a balanced mutual fund with an MER of 1.75 per cent and a balanced ETF with an MER of 0.25. ETFs have no trailers built into their fees, and they’re much more of a lean operation than mutual funds. That’s why they’re cheaper to own.
We’ll assume both funds make an average annual 7 per cent before fees over 10 years, which means 6.75 per cent on a net basis for the ETF and 5.25 per cent for the mutual fund. As noted, the dollar amount of fees for both funds line up as $353.34 versus $2,306.32. Final investment value for the two funds: $19,216.70 for the cheaper product and $16,680.96 for the more expensive one.
Dollar amounts send a message about the impact of costs better than percentages. Find out what your fund fees are trying to tell you on the GetSmarterAboutMoney calculator.
-- Rob Carrick, personal finance columnist
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Stocks to ponder
Rogers Communications Inc. (RCI-B-T) The company left millions of customers unable to access the internet and their phones last week due to its technical glitch. But its stock price has largely been unscathed, reinforcing the idea that telecom stocks are immune to a consumer backlash. David Berman explains.
CCL Industries Inc. (CCL-B-T) Over the past month, the share price has rallied 5 per cent but on relatively low volume. Consequently, this positive price momentum may be short-lived. That being said, the stock is trading at a discount relative to historical levels and the company has been actively repurchasing shares, providing some downside protection for the share price. Jennifer Dowty looks at the investment case.
Is this 2000 all over again for tech?
There’s devastation everywhere on the tech landscape. Share prices have been battered. Market caps have been crunched. Years of profits rolled back. If we’re witnessing a repeat of the Dot.com collapse, Nasdaq still has a long way to fall, and investors face a lot more pain. But Gordon Pape doesn’t think that’s how this will play out, and he’s got a few stock ideas for those hoping to buy on the dip.
Traders unswayed by central banks’ inflation-fighting measures
Prices for key commodity inputs such as copper and oil have slid lower in recent weeks. Home sales are tumbling. Canada’s economy contracted slightly in May, according to early estimates from Statistics Canada. The U.S. economy is also shrinking, according to the latest reading from the GDP Now indicator calculated by the Federal Reserve of Atlanta. Surprisingly, despite this steady trickle of downbeat news, the S&P 500 index of large U.S. stocks edged higher last week while Canada’s S&P/TSX Composite Index finished largely flat. The relatively upbeat tone among traders seems to be based on some perverse but plausible logic, says Ian McGugan.
Are the Ukraine war and high energy prices weighing on the crypto industry?
Crypto mining – not just the upkeep of the bitcoin network but also the generation of new units – uses a lot of computing power. That translates into a lot of electricity, the cost of which is usually the single biggest expense for miners. And usable electricity, of course, has to be converted from other forms of energy. So, when energy prices are now spiking because of the war in Ukraine, that essentially translates into higher production costs for many miners. A natural question thus arises: Is all that contributing to the crypto crash, and if so, what does that bode for future prices? Ethan Lou has some answers.
Why this money manager feels there’s no shortage of good companies to buy right now
Money manager Chris Blumas of Raymond James understands why many investors are reluctant to buy stocks right now, given the economic threats, including growing predictions of recession. But the way he sees it, the market is a lot less risky today because valuations for many securities have already dropped significantly, which means the potential for better returns is even higher for investors socking away funds for the long term. The Globe and Mail spoke to Mr. Blumas about what he’s been buying and selling and one stock he regrets selling.
ESG is facing a political and market backlash. Will it survive?
The push for sustainability was a massive force in business in the first part of the COVID-19 pandemic, but in 2022, it has come under fire. Market and social turmoil have shifted investor priorities. ESG has become a battleground with many fronts. The Globe and Mail asked CEOs: Can the push to turn businesses into forces for social and environmental good survive in a world of crisis and political polarization? If so, are we headed for a new generation of ESG?
Five ways to tell if you deal with a client-centric wealth management firm
Nearly every financial and wealth advisor speaks of the importance of putting clients’ interest above all else. The words roll off the tongue. It is much harder, however, to back up those words with consistent, meaningful actions. Truly professional client-centric advisory firms exhibit these five behaviours, according to Dan Hallett.
Others (for subscribers)
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Ask Globe Investor
Question: At the end of 2021, I engaged in a transaction that resulted in significant cash proceeds. Concerned about the direction of the markets, I kept it mostly in cash. It appears that may have been a good decision. However, it will likely take more time for the markets to continue their downward trajectory. The question is, where to park the cash while I wait? Obviously, bonds are not an option as their slide is not over. I have about 15 per cent in GICs offered by my bank at 1.85 per cent. They will not accept more for that program and therefore the remainder of the funds are yielding less than 1 per cent. Do you have any recommendations? – A.D.
Answer: You did not indicate a time horizon, which is obviously critical to this situation. But let’s assume a year, by which the bear market may have run its course or be close to it.
I suggest looking at EQ Bank. It is currently offering a 4.15 per cent yield on a one-year GIC, and the deposit is covered by CDIC insurance.
--Gordon Pape (Send questions to firstname.lastname@example.org and write Globe Question in the subject line.)
What’s up in the days ahead
Larry MacDonald looks at some Canadian stocks being recommended by top-rated analysts.
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Compiled by Globe Investor Staff