Quantifying the financial impact Exchange Traded Funds (ETFs) can have for a retirement portfolio is a useful exercise; when Canadians can see the impact high fees make on long-term returns, the decision to switch to a product like an ETF becomes a very simple and easy one.
Canadians pay among the highest money management fees in the world, with many investors today still holding entire retirement accounts in investment vehicles like mutual funds.
Many mutual funds charge fees in excess of 2%, an amount which doesn’t seem substantial initially, but can add up to massive amounts over time due to compounding.
Many of the largest ETFs out there charge fees likes than 0.1%, making these funds incredibly beneficial from a fee standpoint.
Additionally, most ETFs are highly liquid, and index ETFs provide the opportunity for investors to match the market’s performance each and every year, a prospect which turns out to be a very good deal for investors, as studies have shown most mutual funds and other actively traded investments trial indices substantially, in part due to high fees.
Even for those investors who insist on actively buying and selling securities, locking up a significant chunk of one’s portfolio in a low fee product like an index ETF takes a lot of worrying off the table.
I suggest, for the enterprising investors, a blended approach- picking certain stocks one thinks will do well over long periods of time, to complement a significant foundation of one’s portfolio in an index ETF or similar product.
Invest wisely, my friends.
