Unfortunately, it's not correct.Thanks for that straight forward response.
It's not that far off to say it's completely wrong. FT wrote...Unfortunately, it's not correct.
Pretty close...comes out of assets...a nuance corrected in the later example.You don't pay anything out of pocket (besides the buying commission). The MER is taken right off the returns.
Not much to quibble with here other than it's not detailed but I thought it more straightforward and understandable (for a novice) than your more detailed explanation. And I highlight this for the original poster's benefit, not to nit-pick or play critic.However, if you want to know how much in returns you're giving up, simply multiply the MER by the amount invested. So if the MER is 0.5%, then $1000 invested will cost $5 per year.
Good point. I forgot about the trading expenses.i think something should be added about how the official MER doesn't include the brokerage commissions to buy and sell the fund's securities. This is often misunderstood. These are not the commissions retail brokers charge to retail investors to buy and sell a specific fund. They are the commissions paid by the funds themselves to broker/dealers for the large amount of stocks, bonds, index proxies or other instruments that each fund's portfolio holds & trades, sometimes on a daily basis.
This is true for mutual funds and closed end funds.i think something should be added about how the official MER doesn't include the brokerage commissions to buy and sell the fund's securities. This is often misunderstood. These are not the commissions retail brokers charge to retail investors to buy and sell a specific fund. They are the commissions paid by the funds themselves to broker/dealers for the large amount of stocks, bonds, index proxies or other instruments that each fund's portfolio holds & trades, sometimes on a daily basis.
Let's be clear, this is not an issue of wanting to hide anything. This is an accounting issue. Expenses that are on account of capital are capitalized into the cost of capital assets. Trading costs are capital costs, which is why they are added to the cost of securities bought and deducted from the proceeds of securities sold. They are a real cost that certainly impacts NAV and returns but it's the accounting rules that dictates the capital treatment.these commissions are hidden in the sense that they are added to cost of securities bought and subtracted from proceeds of disposition from securities sold. These figures in turn affect the amount of cash on hand at the fund each night, and thus they also affect the NAV calculation each night.
This hasn't been my experience. What I would agree with is that TER is not often discussed in my experience. But the funds I use tend to have TERs around 0.1% so it's not a significant cost. There are lots of other details I consider more important so TER is not atop my list of discussion items.it is still fairly common to find fund salesmen who represent to investors that the MER includes all expenses of a fund, including the aforementioned institutional brokerage commissions. Alas it does not.
Many here took shots at me for my restricted MFDA license (i.e. I can't sell ETFs) but I'm about to prove that you don't have to be licensed to know about the products. An ETF tracking a market-cap-weighted index incurs ZERO trading commissions thanks to the market makers and the creation unit structure (which closed end and mutual funds do not have).a weighted etf can have higher brokerage commissions of the type mentioned above, as the product managers are required to buy and sell securities at intervals in order to stabilize the weightings. On the other hand, a non-weighted pure index fund such as plain-vanilla XIU will passively follow the relevant index and feature fewer adjustment-related trade commissions.
I agree that I wish the industry were structured differently but it's not. And since a whole new registration rule came in force last year I don't think we'll see advice licenses (instead of sales licenses) any time soon. So, I operate as best I can within the existing framework.OntFA - if only the licensing requirements *did* actually demonstrate or confer knowledge!
Oh, I took and flew through the CSC. That's a piece of cake and not worth holding out as any real standard. And let's be clear on this: the CSC is not a certification, it's a licensing course you take by correspondence. I chuckle to myself when I see advisors put those three letters behind their name. I didn't even think that was allowed.But. I'm curious. Why do you not have the CSC certification? If you felt like answering, I'd be interested in the response.
I appreciate your response MoneyGal. I have been surprised by how many in this forum have quickly jumped to conclusions about me based solely on two facts: i) I am MFDA licensed and ii) I disagree with them because I argue in favour of mutual funds. And yet these bloaks know nothing about me or how I conduct myself with clients.Right - as I was typing that about "CSC certification" a very small lightbulb was going off in my head about how that wasn't the right word, but I didn't heed it.
We are in agreement, I suspect, about much of how the FA business works.
OK, so the difference is due to the fact that 2% is taken out of earnings every year and not allowed to compound. My error was compounding the totals and then subtracting.In your first calculations, using 8%, you compounded everything.
So the difference, including the 2% mer was compounded. That's why there's more missing than the actual mer that was taken out.
You can get the $160,356.77 result by plugging in past performance of 6% with a 2% mer.
This gives you the mer plus the opportunity cost when you hover over the pie chart with your mouse pointer.