After being a goal for long time, we finally sold majority of my wife’s expensive mutual fund holding. The fund in question is Scotia Canadian Balanced Fund, which had an expense ratio of 2.04%. That number is nothing to sneeze at and the expenses pile up over time. More details on this below. Going forward, we will be balancing our portfolios better integrated so that we align closer to our combined goals.
- Expensive fund: The fund is extremely expensive at over 2%. Two percent is a large amount of money for what is simply an index tracking fund. To put things into perspective, for every $10,000 invested, that results in $200 per year. Over the course of next 30 years, that is $6,000. Now multiply that by every $10,000 invested in the fund and you will notice how the expenses can get out of hand!
- Lack of diversification: Another important factor in selling this fund is the lack of diversification. The fund is invested completely in the Canadian market (55% in stocks and 45% in bonds). While the stock/bond diversification is good, we are exposed too highly to one country (Canada) and any recession or economic hardship hitting Canada will result in serious under-performance and loss of our hard earned money.
We will be using the cash from this sale to invest in index funds via ETFs. ETFs are a lot more inexpensive (its not uncommon to find a fund tracking S&P/TSX for 0.05%) and we will also be picking more than one or two funds to achieve some diversification in exposure to both stocks and bonds. We are also planning on keeping things simple so that my wife can maintain the portfolio going forward. Overall, the plan is to maintain a simple diversified index fund based portfolio in my wife’s account while I invest in individual stocks of blue chip companies.
In the coming days, I will be posting details of which funds we will be picking for the investment in this account. Stay tuned!