• Ms. Money and Math

Do you know what your investments are costing you?

Updated: Dec 28, 2020


According to Money Sense Magazine, only 51% of investors know what they are paying in investor fees. If you are in the 49%, please read on. I’m looking for you. I want you to know and care, because these are big dollars over a lifetime. In fact, if you have at least $100,000 saved, you are likely paying $1,000 or more annually.


There are several options out there for investing your money and the cost of each varies widely. Did you know that if you saved a $1,000 in investment fees each year for the next 25 years, you’d have an additional $50,000 for retirement? That’s why this matters.


There are four main ways that you can invest in the financial markets:

1. Company/government pension plan – in which case, this doesn’t apply to you because you have no say in the administration costs of the pension. However, if it's not a full pension, chances are you still need to save outside of your plan for your retirement, so keep reading.

2. A Financial Advisor

3. A Robo-advisor

4. DIY


Let's start with the Financial Advisor. This is the most traditional way to invest your money. Hand it over to some individual at an investment firm, answer some questions about your risk tolerance and time horizons, and they take care of the rest. Do you know how they get paid? Have they walked you through the fees they earn annually to manage your portfolio?


There are only three ways they get paid:

1. You pay them an hourly rate for their advice. Ranges from $100-400/hour.

2. They charge you a % of the assets they manage for you. Usually in the range of 1-2% (the percentage typically decreases the more money under management)

3. They are paid by the mutual fund company. These fees come off the top of your annual returns so you don’t see them being charged. They come in the form of mutual fund sales commissions, annual trailer fees to keep you invested in a fund and often transaction fees on purchase or sale of funds. The costs range from 0.75%-2.35% annually.


Sometimes financial advisors can provide tax planning advice,real estate advice, preparation of a personalized retirement savings plan, as well as have other products that investors are interested in (such as life insurance). For illustrative purposes, we’re going to assume savings of $100,000. With a financial advisor, you will pay somewhere between $750 and $2,350 per year.


Next is a relatively new player in the market (5-7 years), the Robo-advisor. A robo-advisor is basically a robot or digital platform that invests on your behalf. WHAT?! They invest your money in pre made portfolios based on your individual situation, your risk tolerance, and your investing time frame. Similar to a financial advisor, they are regulated to gather all of the same information up front, such as your financial situation, your risk tolerance and your investing time horizon. They have already built custom portfolios that they will invest you in based on the information you provide, and there is little to no human interaction. For some people, this might sound terrifying. To me, this means there is no human bias. There is no money manager out there that can consistently beat the market. Read that again. Humans can be incentivized by certain fund companies or biased toward a certain industry or investment.


With a robo-advisor, you remove all of the bias, have little advice, but you pay very little in fees because they invest in low-cost ETFs (Exchange traded funds). The reason that ETFs are less expensive than mutual funds, is because they are passively managed. Mutual fund managers have to pick every single investment they make, whereas in ETFs, they are just investing in an entire segment of the market (for example, US large companies, or technology sector, or Global stocks etc).


I could explain in more detail how these ETFs work, but for today the takeaway is - the portfolios of investments they design are more broadly invested across the markets – for example, instead of investing in 10 Canadian stocks, you’re invested in the top 500 in one investment. This provides additional diversification, you know the old saying, don’t put all your eggs in one basic. Same idea.


They also offer all of the same types of accounts as banks and financial advisors, such as 401k/RRSP, RESP, TFSA, RRIFs, LIRAs


They will not give you advice on whether you should buy a cottage next year, or assist you with a complex tax planning. But if you don’t get this service now, then you won’t miss it or pay for it.

Which brings me to cost. They are inexpensive. There is a wide range from 0.2% - 0.7%, and often dependant on how much you have to invest. In most cases, as you add more money, your fees as a percentage go down. I have 2/3s of my portfolio invested with a Robo-advisor and my annual fees are roughly 0.48%!


So on $100,000 invested, you would pay somewhere between $200-700 annually.


The final option is DIY investing. This is when you go it alone! All of the major banks and other online brokerage companies offer online trading platforms with investment accounts that you “self-direct”. This means, you have access to purchase stocks, ETFs, mutual funds, options, GICs directly.

These online platforms typically offer additional features to help self-directed investors (and especially beginners) navigate the markets, such as real-time quotes, stock screening and comparison tools, educational articles and tutorials, and market data and research.


Most of the major banks offer free accounts with no minimum investment amount. All you pay is for each trade, which is typically $7-10. So if you plan to buy and hold, and not day trade – your annual costs would likely be under $200 per year regardless of what you have invested. DIY is the most cost effective way, but it requires some time and attention. There are so many resources out there to create a very simple portfolio, if you are prepared to put in some time up front. If you are curious about doing some of your own investing, this is amazing! I suggest you start small. Allocate a small portion of your savings to a self directed account. Do some reading using the tools provided. Investing can seem like such a daunting topic. Financial institutions make it sound so complicated. There are highly sophisticated products out there mainly geared towards institutional investors. So it can be complicated, but it can also be very simple.


Which ever option is best for you, these rules apply always. Pay yourself first. Invest consistently. Stick to your strategy. Buy regularly. Definitely buy when the rest of the world is selling (on market drops). Rebalance when necessary. And wait. Watch your money grow.


Much love, gratitude and money



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