It is time for another one of my Mutual Fund Rants!
I don’t know about you but I am so incredibly sick of seeing the Financial Industry Ads constantly trying to convince and manipulate us into thinking that they are our friends and that they have our best interests at heart.
Did you know that every single major bank in Canada made BILLIONS of dollars of profit last year (and the year before, and the year before that)?
With the deadline for RRSP’s having just passed (at the end of February) lots of these commercials have been focusing on retirement, and more specifically RRSP’s. They quietly pressure us into investing our registered investments with them so that they can continue to make billions of dollars off our hard earned money.
Most Canadians feel this pressure to put money into their RRSP, without making time to research where to put the money or what vehicles to invest in. Many investors simply “park” their RRSP contribution to take advantage of the income tax savings by doing so (there are many short term tax advantages for people to contribute to their RRSP’s and in many different instances it makes a lot of sense).
Of course, the banks LOVE it when customers park their money in an RRSP account at their branch (which is why they spend so much trying to convince you to choose their bank), because once they’ve got it, it is MUCH easier to force the client into buying one of the investment funds that the bank owns.
I don’t know if you’ve ever been through that process, but it feels far too simple…considering you are dealing with tens of thousands of dollars of your own hard earned money and where it should be invested.
They lay out 3 different brochures in front of you (or have you answer a series of insultingly vague questions), each for a different investment fund. Of course, ALL 3 are owned by that bank, so they don’t care which fund you pick since they’ll make money regardless of what you do.
It truly amazes me how manipulative the financial industry is against its own clients, and how the average person who doesn’t really understand investing and financial fundamentals really gets SCREWED by the system.
The industry PURPOSELY withholds critical information from investors so that they can’t really see just how unfair the whole process is. For example, if you have any mutual funds, pull out your last statement that you received.
What is the Management Expense Ratio that they charge you?
Well, isn’t THAT strange. It’s not ON your statement, is it?
They’re not required to disclose what they charge as an M.E.R fee. How on EARTH are you supposed to figure out what to invest in if you’re not told how much the associated fees will be?
And don’t think for one minute that these fees are an afterthought. They can absolutely KILL your retirement dreams.
Let me give you a Real Life Example of how these fees can destroy your retirement:
Let’s say you have $10,000 that you have invested in a Mutual Fund. That particular fund charges an M.E.R. (Management Expense Ratio) fee of 2.5% (which is the average MER fee in Canada right now). Meaning every year, the Mutual Fund deducts 2.5% from your account for the ‘service’ of managing your money for you (this fee is charged regardless if your Mutual Fund investment makes money or loses money and this fee is one of the major reasons why the banks make billions every single year).
In this example, you keep your money invested in the Mutual Fund for 20 years, and it makes 8% each year (which is more than ANY Mutual Fund has averaged over 20 years but let’s just assume you get lucky).
After 20 years, your returns are as follows:
1) Your total gross balance after 20 years would be a little over $46,000
2) But your net balance (after the MER fees have been taken off year after year) ends up being a little over $26,400
3) That means you lost over $20,200 (or 43% of your total returns) to the financial industry because of the MER fee!!!
It’s laughable, and yet the system continues to churn along because so few people even ask these kinds of questions.
Think about that. The M.E.R. has cost you 43% of the total returns you WOULD have made without paying that fee.
And yet, they manipulate you into thinking “2.5% is not that much, who cares?”
This is why I’m so passionate about trying to encourage people to take control of their financial future!
If you want to retire on your own terms you MUST take responsibility for your investments, and really UNDERSTAND what you are investing in and why.
There is no doubt it’s work because it means you have to educate yourself. But in the long run the manipulation, deception and unfair tactics that the financial industry uses will absolutely KILL your dream of financial freedom if you don’t understand how it all works.
So, if you are asking yourself what your next step should be to get educated and take control of your financial future I would do two specific things right away: