National Post - Financial Post Magazine



“The first rule in investing money is not to lose it,” says Benoit Poliquin, lead portfolio manager at Exponent Investment Management Inc. in Ottawa. Yet that is precisely what Mark and Eve Johnson are doing since they have many investment­s in high-fee mutual funds. One equity mutual fund they own has annual fees of which is of the fund’s present market value, Another fund, a successful bond one run by a chartered bank, has fees of per year, but an average annual return of just for the years ended Sept. In other words, the fund manager made about as much as the year investor. In all, the couple is paying

per year in mutual fund fees. They could replicate the mutual-fund portfolio with exchange-traded bond and stock funds for annual fees that would amount to about of net asset value. The annual savings in fees would put the couple’s total income at

more than meeting their retirement target.

There are major difference­s in how mutual funds and work. Mutual funds have active managers that permit them to drop risky assets before they wither or load up on promising stocks or bonds above their weight in the indexes that most replicate. But many mutual funds follow market allocation­s. Indeed, they have no choice. A large-cap Canadian equity fund will have a heavy weighting of financial services, miners and energy as they are heavyweigh­ts on the Specialty funds can diverge from the or other exchanges, but they tend to have higher fees and higher volatility as a result of sector concentrat­ion.

In the end, saving on investment expenses boosts returns and lowers volatility. Higher returns achieved by saving money beat boosting returns by adding risk, Poliquin notes.

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