The Truth about MER’s

I’m not going to write a post to simply try and justify the benefits of MER’s, however I do want to try and expose why they exist and why they can make sense.

The term “MER” stands for Management Expense Ratio and is the fee that many Fund Managers and Companies will take from the fund return of those who invest with them. After all, their objective is generally to make you more money then you could make on your own and for that, they deserve to be paid. This is no different then any of us collecting  a pay cheque for what we do day in and day out.

There is no question that MER’s are a cost to you as an Investor, but I do believe that they can be worth it depending on the fund and Manager of choice. For example, if you are diligent in searching the market for strong funds that have consistently outperformed their benchmark and which have almost removed the need to constantly watch your portfolio on a daily basis, wouldn’t you agree that it can make sense to pay someone else to do the work for you? The flip side however is that you may end up in a fund that rarely if ever out performs the benchmark in which case you would be far better off to simply put your money in Exchange Traded Funds.

Your Take-Away: If you choose to create and manage your own stock portfolio and are consistently making wise decisions that result in postive returns above and beyond the bench mark, then good on you. There is absolutely nothing wrong with managing your own money assuming you have the time and expertise to do so, and I would never suggest anything different. For the majority of people however, this is not the case which makes choosing a strong Manager and fund or series of funds of the utmost importance.

When you are looking at funds that you could purchase, consider the following as a starting point:

  1. What is the total MER compared to its peer group?
  2. Is there a performance fee in addition to the MER?
  3. Is the expense component fixed or variable from year to year?
  4. Who is the Fund Manager and what is his track record over a decade or more?

Although this is not an exhaustive list of questions to ask, it is definitely a great place to start. CI Investments was the first Mutual Fund Company in Canada to fix their MER and many are now following suit. That is definitely a positive for those of us who don’t want to have to worry about our MER going up every year.

Until next time, have a Terrific Thursday!

Chris

2008 Budget Analysis

As you probably know by now, the proposed budget for 2009 was announced last night at 4:00pm, and it contained a number of very interested points and initiatives to consider. There were three initiatives that apply to us today including the ”Tax Free Savings Account (TFSA)“, changes to your RESP’s, and changes to Dividend Tax Credits.

Your Take-Away: Although we don’t have the time to discuss every detail of these updates, I do want to focus on the Tax Free Savings Account as this is a tremendous opportunity for 2009 and one that the Government definitely hit a homerun with. Below is a summary of the major benefits and details of this new Tax Free Savings Account:

As you can see, this new Tax Free Savings Account will provide substantial benefits for any Canadian, regardless of income bracket or age. I personally have to say that I am very impressed with this initiative and congratulate the policy holders for coming up with a very creative, effective and generous strategy to help ease Canadians tax burden.

If you have any questions or thoughts regarding this new account, or any other part of the budget announcement, please do not hesitate to contact us directly. Feel free to to post your comments as we’d love to hear them.

Until next time, have a Wonderful Wednesday!

Chris & Elisseos

CI Investments Announces NEW T-Class Funds

On Monday October 15th, CI Investments announced the launch of their new T-Class Mutual Funds.

CI has recently thrown themselves into the ring of mutual fund providers who have created a solution primarily focusing on the Senior and Baby Boomer market, or those looking for tax efficient income producing vehicles. This type of fund structure is currently available through most mutual fund firms such as Franklin Templeton, AIM Trimark and Mackenzie, and has been often been referred to as Return of Capital (ROC) funds, T-SWP funds or T- Series Funds. 

CI’s Chief Executive Office, Peter W. Anderson stated on Monday that “After-tax income is the critical issue for investors since many traditional interest-paying investments offer both low yields and high tax rates. As one of the most tax-efficient investments available, T-Class is an important option for retirees and other Canadians planning for their retirement.”

Your Take-Away: This type of non-registered investment vehicle is almost a no brainer for anyone who is looking to:

  1. Create steady, predictable, tax efficient income
  2. Minimize their annual tax bill on the income they earn
  3. Protect their Old Age Security (OAS) from being “clawed back”
  4. Have liquid access to your investment in the case of emergency

There are all kinds of investment products available to Canadians, and it can sometimes be a bit overwhelming when trying to decide what product or strategy makes the most sense for your specific situation.  In my opinion, this truly is a concept and product that can make a lot of sense to a lot of investors. 

Enjoy your day!

Chris