The High Cost of Mutual Fund Fees

Speaking in Toronto on December 4, 2000, John C. Bogle, founder of the Vanguard Group, presented, in great detail, data to prove that "mutual fund investing is an expensive home to long-term investors." One thousand dollars invested 50 years ago in the S&P 500 would have grown to $514,000. However, with fees of 2.2%*, financial intermediaries would have taken $321,000 of the sum leaving only $193,000 for the retiree.

Bogle used the word "shocking" to describe this loss of 63% of the market's cumulative return to the intermediaries. All mutual funds charge an MER (Management Expense Ratio) fee. In Canada the average MER is 2.2%, Canadians pay among the highest mutual funds fees in the world. Most mutual fund holders are not aware of the MER, the MER is deducted at the source from the mutual fund company. For example when you receive your mutual fund statement at the end of the year it may state that your investments increased by 4.5% , however  your actual performance was 6.7% and the mutual fund company deducted the 2.2% fee from your return.The MER fee may not sound like much but as you can see over time the fees will add up to thousands of dollars.

Eliminating the MER fee is simple....avoid mutual funds. A solid portfolio built upon the principles of value investing will ensure that you never pay extra fees.