Recent Sell – Mutual Fund

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.

Why Sell?

  • 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.

Investment Strategy

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!

15 thoughts on “Recent Sell – Mutual Fund

    • Tom,
      Thanks for stopping by and the comment. I am looking at the Vanguard funds and will probably go with them. Evaluating the differences between Vanguard and some other iShares and BMO ETFs

      R2R

  1. R2R,

    I’m mixed on this. As a BNS shareholder, I’m sad to see they’ll lose some revenue…

    Haha.

    Seriously, though, those fees are insane. I’m surprised you guys didn’t get out a long time ago. You’ll be saving some serious cash investing elsewhere.

    Cheers!

    • Hahaha,
      I am a BNS stockholder as well…and its things like these that I realize how they just take money from their customers.

      Yeah it took a while for my wife to understand the impact of the fees. We will be saving a LOT of our hard earned cash over the years
      Thanks for stopping by
      R2R

  2. R2R,

    You seem to have made the right call to sell your fund. No investment vehicle should charge you more than 2% of your return simply to manage it. Switching to a low-cost ETF is the way to go!

    Try explaining the above to your average Joe though…

    Looking forward to read about the funds you’re going to invest in!

    Cheers,
    NMW

    • Thanks NMW. The 2% is a huge amount of money – but for the average joe, the 2% sounds pretty small.

      I have a shortlist of the funds I want to use as ETFs – should be able to post that on the blog soon.

      R2R

  3. Excellent move R2R! I’ve been looking into index funds and ETF’s myself. I look forward to reading about your decision on which to invest in. : )

  4. M says:

    Good idea to sell. I think I remember you mentioning the possibility of this in a previous post, so I’m glad you actually did it in the end. 2% is pretty high! Here in the UK, we’ve recently hd some regulatory changes called RDR (retail distribution review), which basically mean that funds which used to be charging higher AMC’s (and giving a rebate or ‘bonus’ back every so often) are now just not allowed to do that anymore. Instead, they just cut their AMC’s, so most stuff is under 1% now. If you own any of the funds that used to charge the higher fees+rebate, they are gradually being changed to ‘clean’ fund equivalents.

    You’ll certainly soon see growth on an upward curve from the lower fees = more money to invest YAY

    Cheers

    • Thanks for sharing, M.
      Sounds like the UK authorities are doing something right. Its the wild west here in Canada – the banks are just robbing everyone blindly. Makes for a great cast to invest in them and be on the other side of things though 🙂

      The good thing is that people are getting smarter and educated on the matter and realize that they have been taken for a ride for decades. The entry of ETFs makes it so much easier for ppl to maintain their portfolio. Looking forward to keeping more of our money.

      cheers
      R2R

  5. Great idea on getting out of that expensive mutual fund. Sticking with the cheap Vanguard ETFs or even going with Schwab’s offerings (I’ve been a happy client of theirs for quite some time) makes a lot of sense.

    However, depending on your risk tolerance and amount of money currently in the mutual fund, you could also diversify into stocks as well. One of the benefits of that would be that you could pick and choose the companies and industries that are currently best valued.

    For example, you could choose to invest some directly into Chevron right now and pick up the shares at a great price. If you invest instead in a large cap ETF, you’d be buying some of Chevron but also be buying into sectors that might not be such a good deal.

    • Thanks for stopping by and the comment, Scott. I checked out your site and it was quite interesting…I have added it to my reading list.

      I agree that some stocks might provide better value than buying a whole index. For that reason, we have decided that I will be investing in DGI companies in my portfolio, while my wife’s portfolio will consist of index ETFs. We may dabble a bit with some stocks in her account in the future, but for now, we want to keep it simple.

      regards
      R2R

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