One of the big reasons I became a DIY investor in the first place was to stop paying the typical 1% to 2% annual charges professional money managers charge.

Now before you start scoffing at “small” numbers like 1%, you have to consider a few things

• 1% of one million dollars¹ is $10,000. Retirement savings generally involve relatively large numbers, and small percentages translate into large real dollars. The lineups I see at the gas pumps to save a buck or two on a tank of gas tell me that real dollars are generally more meaningful to people than percentages.
• Compound interest. Throwing away $10,000 on management fees every year means you’re $10,000 poorer every year. Fast forward ten years at an assumed 6% rate of return, and that $10,000 annual hole turns into (roughly²) ~$135,000 hole
• …and the most annoying thing? A 100k portfolio is charged the same percentage as a $1M portfolio, meaning the $1M portfolio attracts 10x the fees of the 100k portfolio. Is the $1M portfolio ten times harder to manage? No!

But ok, even a DIYer doesn’t invest for free.

• If you hold any kind of asset, there’s potentially³ commission fees every time you buy and sell
• If you hold ETFs (as I do) then the FER⁴ will cost you, although not explicitly. FERs kick in before you see your own returns.
• You might pay interest if you borrow money to trade (aka using margin)⁵
• You may pay FX fees if you trade in currencies other than CAD⁶

So let’s look at what my retirement portfolio is actually costing me. For me, that’s now down to FER costs. Using my latest What’s in my retirement portfolio? article, it’s easy enough to calculate. I track in real time how much of each asset I hold, so by looking up the FER and multiplying by $1,000,000, you can get the annual cost :

It’s a bit higher than I expected, admittedly. $1902 is a far cry from the $10,000 I talked about earlier, but it’s not nothing.

I wonder what my rock bottom costs would be? If I were to eliminate all-in-ones (which are convenient, but costly) and just focused on 5 funds, one for cash, one for bonds, one for Canadian equity, one for US Equity and one for International equity, what would I end up with given my asset allocation targets? Here’s that table:

I chose ZAG over XCB because ZAG is a broader bond fund than XCB and diversification is good. I use XCB today because I get broad bond exposure via XGRO. I picked ZST over ZMMK for this exercise, but in reality I would probably still hold ZMMK and ZST in equal proportion. That would lower my overall costs ever so slightly.

I suppose this experiment shouldn’t surprise me: I covered the costs of all-in-ones in a previous post. But this shows that I could cut my annual costs in half should I choose to forgo the convenience of XGRO and XEQT. XGRO would be hard to give up because it makes managing my RRIF accounts (the only place I hold XGRO) much easier. I only sell XGRO to cover my RRIF minimums at the moment, no decisions necessary.

But XEQT I only hold in my long-duration⁷ TFSA account. There I could possibly make the switch with no real impact other than reducing my fees by about 0.01% or $100 on a million. Something to think about. What about you? Do you pay close attention to MERs/FERs of assets you own? Let me know at comments@moneyengineer.ca!