This post is the first in a five-part series outlining the primary benefits of the Couch Potato strategy.
Mutual funds are a great investment tool—in theory. They allow small investors to pool their money and buy stocks and bonds that would be far too expensive to purchase individually. They’re managed by professionals who—presumably—use strategies that are more sophisticated than those the average investor could employ. No wonder so many Canadians own them.
Unfortunately, mutual funds have a fatal flaw: they’re too expensive. Especially in Canada.
Equity mutual funds offered by the big banks typically charge 2% to 2.5% in management fees, often considerably more. Fund companies that sell their products directly to investors—such as Phillips Hager & North, Beutel Goodman and Mawer—charge lower fees, but 1.2% to 1.5% is still typical.
Canadians, in fact, pay the highest fund fees in the world: a recent report by Morningstar graded fund expenses in 16 countries and gave Canada the only F. “Canadian investors are comfortable with the fees,” the report says, “because they don’t know how low these fees should actually be.” Now doesn’t that make you feel like a chump?