DO MUTUAL FUND MERS MATTER?
11/23/2017 7:21:32 PM
HOME : FEATURES : QUESTION & ANSWER : DO MUTUAL FUND MERS MATTER?
 
Wealth Builder
Gordon Pape writes on common-sense wealth-building strategies.



By Gordon Pape  | Friday, April 21, 2017


Q – Here is a question related to mutual fund MERs. Hypothetically, let’s say there are two mutual funds in a portfolio. Fund A has an MER of 2.5% and Fund B has an MER of 1.5%. Both funds report exactly the same return for every year after fees and expenses. My question: In this hypothetical example why should I care about mutual fund MERs if the net return is the same? Actually, why would I care about MER at all? Should I only focus on the return? – Minh T.

A – I’m glad some people understand what I’ve been saying for years. The only number that should matter when judging mutual funds is the net return to you. If a mutual fund with a 2.5% management expense ratio returns 10% a year after expenses and an ETF with a 0.5% MER gains just 8%, which would you choose? Clearly, the mutual fund puts more money in your pocket than the ETF, even if its costs are higher. This is not to suggest people should ignore costs. However, judge them against returns before deciding.

Notes on RBC Select Conservative Portfolio

Q – I am putting all my RRSP into a RRIF to start in June 2017. My Royal Bank planner says I should put it into RBC Select Conservative Portfolio as I told him I want low risk. The money is in GICs right now. They will charge me 1.8% (MER). Is this a good fund? – Gordon S.

A – This portfolio invests in 25 Royal Bank and Phillips, Hager & North mutual funds. It’s a global balanced fund with an emphasis on the fixed income side (53.5% of assets). Performance is below average for a fund of this type. The portfolio gained 4.1% in 2016 compared to 4.8% for the category as a whole. The 5-year average annual compounded rate of return is 6.2% versus 6.8% for the group. The fund hasn’t lost money in any year since 2009, but it isn’t completely safe. It dropped 13.8% in the 12 months to the end of February 2009. Overall, I’d rate it as average for its type. – Gordon Pape

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investornewsletter, which are available through the Building Wealth website.

Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.

Notes and Disclaimer

© 2017 by The Fund Library. All rights reserved.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

   
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