A bloody affair

Why ETFs might be a better option than mutual funds for your retirement.

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If your investments are making only 6% returns, paying 2% to an investment professional will significantly reduce your savings, says Warren Mackenzie, president of Toronto’s Weigh House Investor Services and author of New Rules for Retirement. Consider buying exchange-traded funds instead of mutual funds. With an ETF you effectively subtract the cost of paying a portfolio manager from your fees. Costs can be 1% to 2% lower than for mutual funds.

According to Horizons Exchange Traded Funds, if you invest $100,000 for 15 years in an ETF with a 0.7% management fee, versus a mutual fund with a 2.25% fee, and get a 10% return on both, you’ll make $83,801 more with the ETF. You’d have paid $128,524 in fees for the mutual fund, and only $44,723 for the ETF.

If you’d rather let someone else handle your investments, make sure to negotiate fees. “You can negotiate commission on a single security stock or a managed portfolio,” says Cindy Davis, vice-president of estate planning at Raymond James. “You can negotiate on anything really.” Try to get fees down to 1.5% a year, she says, and do not pay a commission on fixed income.

(Research, editorial and spiritual support provided by Bryan Borzykowski; “artistic” support by Trevor Melanson )

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