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Why I left the mutual fund industry

For decades, mutual funds have been a hugely popular way for Joe or Jane Canadian to own pieces of companies.  For years, I thought this was a great way to invest too.

Many investors still believe in this route and I can understand why:

  • Mutual funds provide instant diversification.   Many people don’t have the cash to invest individually in a large number of companies so a mutual fund allows investors to own  positions in a bunch of companies.  If a few of these companies don’t do well, no problem, the rest in the fund should offset poor performers.
  • Mutual funds provide professional money management services.  Many people don’t have the time, energy or desire to research good stocks, when to buy them, where to hold them, etc. so professionally managed money helps people in this regard. Time has always been precious in our busy world.
  • Mutual funds provide liquidity.  Many people, probably everyone at some point, invariably find themselves in some financial emergency and need money for something.  Shares of mutual funds can be easily sold; especially if you kept your funds outside an RRSP.
  • Some mutual funds can be very inexpensive to buy.  No-load mutual funds exist.  These funds don’t charge any fees to buy or sell units but they do have operating expenses.

I could go on about the merits of mutual funds but the last point above is really why I left “the industry”.   The costs and fees were too much and occurred too often for me.  What was too much?  I was spending at least 2% of my hard earned money in fees.  This is money I would never see again.

Here are some examples of mutual funds fees I incurred at some point or another during my early investment years, before I became My Own Advisor:

  • Load charges to buy the funds in the first place.  Basically, you’re paying to get into the game.  These are called front-end loads and some funds have historically charged up to 7% for this – that’s $700 for every $10,000 invested folks!   I
    never paid this much but I did pay-in to get-in once; about 3%  Never again.  Before I played this game I should have known the rules; investors can negotiate the front-end fees of some funds.  We all know what hindsight is…
  • Back-end loads to sell the funds.  Variations of this may be called exit or redemption fees or deferred sales charges (DSCs).  Basically, you’re paying to get out of the game.  These fees are charged to get out of the fund and are levied only on the amount invested, not on any reinvestments of dividends or capital gains or appreciation on the fund units.  They’re usually based on a sliding scale that disappears over time. For example, there may be a 5% back-end DSC fee to sell the fund in the first year but that fee may be reduced by 1% each year.  Thus, if the fund is held more than five years, there’s no fee to sell.  Lucky us.  Investors should know these fees are not negotiable – at least they weren’t in my case.
  • Expenses that the fund incurs during operations. Operating fees to cover amounts paid to fund managers and expenses of buying and selling the fund shares.  Operating fees and management expense ratios (MERs) can range dramatically.  I recall Canadian Capitalist did a good post about this a couple of years ago, how much Joe or Jill Canadian willingly spend on mutual fund fees.

Simply stated, Joe or Jane Canadian fork out lots of money, some of the highest mutual fund fees in the world, to own pieces of companies.  I can’t blame them.  For years I didn’t know any better either.  I guess this wouldn’t be so bad if you owned mutual funds that always outperformed their index or consistently beat all its peers, however my own decade-long experience with mutual funds (in my 20’s and my early 30’s) and a boat load of research suggests these events are more rare than any steak you’ll ever order.  Last year, the Globe & Mail had a very good article on this topic.

What’s more, those few mutual funds that do beat their index typically aren’t the same funds that do it again over the next 10-year term.  I don’t know about you, but I don’t have time to find needles in haystacks.  Besides, even if you find your needle you’re going to get pricked by it with fees!  Let me show you just one example.

The Investor Education Fund website has an excellent mutual fund impact fee calculator that drives home this point.  Unfortunately it took me almost a decade to understand what this calculator showed me  in seconds but experience nonetheless is a valuable teacher.   Anyhow, I used the calculator to estimate the total fees paid to invest $25,000 in the RBC Canadian Equity Fund over 10 years.  My results were not surprising based on what I know now but the math is profound all the same:  it would have cost just under $6,400 to buy and hold this Equity Fund.

By comparison, using the same calculator; investing the same amount ($25,000), over the same time period (10 years) and instead of choosing the Equity Fund I choose the RBC Canadian Index Fund, I would have saved a bunch of cash.  Even though the Equity Fund did manage to beat its index now and then over the years, it never did so by leaps and bounds.  I would have saved about $4,000 or I could have reinvested that money over time.   Over a 20-year time period, the math balloons to over $17,000!  That’s not chump change.  Thankfully I didn’t wait that long to get out of mutual funds.  Remember readers, fees are forever.

If your goal when buying an actively managed investment product is to beat the index, I wish you luck, lots of it.  I hope you find that needle amongst the hay.  If your goal is to simply get market returns, I suggest you get a broad-market index product and be happy with that.  You’ll keep much more of your hard earned money and you’ll get returns close to any of the top-flight mutual funds of the given day.  Win-win.

In closing, I stopped being Joe Canadian and left the mutual fund industry a couple of years ago because I was tired of paying the fees that impinged on my portfolio growth.  I gave up searching and hoping to find that proverbial needle in the mutual fund haystack.  Even if I found this gem of a fund, it wouldn’t have been a painless journey so I’ve learned.  I would have been pricked by the process of pesky mutual fund operating costs and fees for as long as I owned the product.   Like your annual visit to the doctor’s office for a check up, who wants these pokes in the arm year after year after year? ;)

Did you leave mutual funds for the same reasons I did?

Did you ever own them in the first place?

Filed in: Mutual Funds

50 Responses to "Why I left the mutual fund industry"

  1. I believe I counted correctly. You mentioned the word “fees” 17 times in this article. I think that’s just about everything anyone has to know about Mutual Funds! Stay away!

    I did have an investment with a Mutual Fund when I first started investing back in January/February 2010. I backed out two weeks later, and was stunned when my brokerage told me they may not allow me to get out so soon. Once I had my cash back in hand I knew I never wanted to go anywhere near these types of funds ever again. I decided to empower myself and learn about investing.

    Good stuff!

    • My Own Advisor says:

      Hey Mantra, thanks for counting, the word “fees” was added ad nauseam by design :) I still can’t believe I had mutual funds THAT long!

  2. Elemag says:

    Another great post, Mark! The answers to your two questions are yes I owned them in the first place and I must admit I still own them. However, because of the same reasons you have stated, I will abandon this strategy. I figure instead of owning Canadian blue chip dividend paying stocks via BNS Dividend fund, why not own them in my DRIP portfolio, TFSA or Self-Directed RRSP as individual stocks? Why pay all the MER fees and get little or nothing of the dividends each company pays? I already drip ENB, BNS, FTS, SU, BMO just to name a few, so everything had been set up already. I have been considering this move for quite some time and honestly, I don’t know exactly why I still do monthly contributions to my fund portfolio. The more I think about it, the more I realize that the MF industry is there to serve the salesmen and fund managers and not the investors! A bitter truth it is!

    • My Own Advisor says:

      Thanks Elemag, I appreciate your comments and support. Really, you still own them? When, as you say, will you abandon this strategy?

      You are I sound alike. I owned the TD Dividend Growth Fund for many years, and after awhile I thought “why the heck don’t I own these stocks directly?” I couldn’t think of any good reason not to, so I started my journey into DRIPping Canadian stocks. That was over 3 years ago now. I’ve got some of the same dividend-payers as you: BNS, ENB, FTS, BMO, also to name a few. BNS and FTS are my only ones that I cannot run a synthetic DRIP with yet, unfortunately. My other 10+ Canadian stocks are compounding along every quarter quite nicely ;)

      I agree, the mutual fund industry is self-serving but then again, it is a business afterall and I can’t blame them – they are out to make money just like you and I.

  3. With so many ETF options out there these days offering the same instant diversification for .05-.50% I cannot understand the appeal of mutual funds anymore. What frustrates me is that I have tried to explain this to my parents over and over again (they have mutual funds inside their RRSP, and every year they go the bank and “buy RRSPs”) having no idea what they’re buying even. So frustrating, I can only imagine the compounded losses they have incurred over the years.

    As a side note, how difficult do you DRIPers find doing your taxes with that setup? I love the idea and have read a lot about it (the nice little 1-3% discount is great), but I live in a rural area so it is tough to find good financial assistance for semi-complicated tax issues.

    • My Own Advisor says:

      @My University Money,

      Hey, thanks for commenting!

      I know, my parents are the same – they keep their money in mutual funds in their RRSPs. I have offerred to help them many times, but it takes discipline to make the step away from mutual funds and be a little more active as an investor, even though you are buying passive products. I’ve stopped offering help because I feel if folks are really serious about it, and I mean folks as in my parents as well :), they will act. Unfortunately, I suspect my parents have lost at least $20,000 over the years due to mutual fund fees. Even worse, they were invested in some crazy stuff. Kinda sad.

      To your question about how difficult it is to DRIP? Not that bad at all! I only find calculating the adjusted cost base can be tricky but really come tax time, unless you have sold something, the tax headaches are not that bad at all. Mind you, I might feel this way because I’ve always done my own taxes and I’ve learned everything about taxes and tax filing on my own. This includes when my wife and I had a rental property; we did all the rental tax claims and proceeds of the sale ourselves. I got it right to the very penny come tax time :) This is not to say I haven’t made some mistakes with tax filing but I’ve also learned from those as well. If you’re worried about tax complications and DRIPping, you could always start off with a synthetic DRIP in your TFSA? This way, the discount brokerage takes care of everything and you have no issues if you bought and then sold an investment. Start slow would be my recommendation. What I mean is, instead of getting into a host of full DRIPs, why not try just one and see how that goes in year 1? That way, come tax time, you only have one investment to worry about. Again, no real issue you sell the stock. The transfer agent will send you a report in the mail (called a T5) with everything you need to know to file. Then again, if you bought a good company, that always pay dividends, why on earth sell it?

      Thoughts on that?

  4. I did also invest in mutual funds in the past. I only have figures on Quicken going back to the early 1990’s, but my experience wasn’t good. I have compare the mutual funds I bought to what I made on Fortis (TSX-FTS) a utility I have owned since the 1980’s and the results are astounding.

    I had once thought that a combination of mutual funds and a few individual stocks were the way to invest. However, I have not been into any mutual funds, nor any ETFs since 1999.

    For Altimira Fund, I bought it December 31, 1994 and sold it October 7, 1998 and made 1/2 of 1% total return each year. Over the same period I made on Fortis 10.67% per year.

    For Templeton Emerging Markets Fund, I bought it April 24, 1996 and sold it September 1, 1999 and made 2.54% per year. Over the same time period, I made on Fortis 9.73% per year.

    For Templeton Growth Fund, I bought this June 23, 1993 and sold it October 21, 1998 and made 13% per year. However, on Fortis I made over this same time period 18% per year.

    For AGF Growth Equity Fund, I bought it on January 25, 1994 and sold it on May 12, 1999 and made 4.9% per year. Fortis, over the same time period made me 16.4% per year.

    All my figures are calculated by Quicken.

    • My Own Advisor says:

      @Susan,

      With your experience (and success), I’d like to say you don’t need funds or ETFs for your portfolio! Thanks very much for sharing your comparisons of previous funds held, to Fortis. I think I’ve drawn some conclusions from you comment ;)

      Thanks again for your contribution to my blog! Keep those comments coming Susan.

  5. I like the idea of using one. Now just so I’m sure on my definitions, a synthetic drip is essentially when a brokerage automatically re-invests your dividends for you as opposed to the “authentic” one where the company re-invests it automatically. The only real difference there would be the discount on the “authentic DRIPs?

    Also, there are some great opportunities with American DRIPs (especially in this economy), but are you aware of what the tax situation would be on those?

    Finally, with synthetic DRIPs I’m assuming you don’t have to go through all of the paperwork required for “synthetic” DRIPs right? I remember when I first read into a few months ago, there was quite a bit of legwork to do in setting up a DRIP with a company.

    • My Own Advisor says:

      @My University Money,

      Yes, those are the basics per se.

      Synthetic DRIP – reinvests dividends paid by company so you’re buying whole shares of that company instead of receiving dividends in cash (e.g., buys 1 share, 2 shares, 3 shares, etc. per quarter). If you don’t have enough dividends paid to you to DRIP one full share, you get the dividends in cash. These DRIPs can be done by your discount brokerage, although not all companies are eligible for synthetic DRIPs by your brokerage. Check with your discount brokerage to ensure before you buy your company, it is eligible for synthetic DRIP. Most big-cap Canadian stocks are eligible though – I’ve checked but I encourage everyone to do their own due diligence.

      Full DRIP – reinvests dividends paid by company so you’re buying partial shares of that company instead of receiving dividends in cash (e.g.., buys 0.5689 share, 1.3456 shares, 2.9823 shares, etc. per quarter). In this case, you don’t need enough dividends paid to you to DRIP one full share, you get partial shares instead :) These DRIPs are executed by the stock transfer agents. Computershare is one in Canada, Canadian Stock Transfer Company (CIBC Mellon) is another. The benefits of full DRIPs are many; you can make optional cash purchases for your stocks and not pay ANY commissions (mail letter, cheque and pay for a stamp); some stocks offer discounts on optional cash purchases and stock reinvestments; you get partial shares compounding instead of waiting for a full share; the list goes on.

      About your question regarding DRIPs for American stocks, I am aware of some of the tax implications, this is why I don’t do it :) That said, I can send you an email or better still, create a blogpost about that. DRIPping Amercian stocks is a little more complex; not to mention, you don’t get favourable tax treatment from our Canadian government for U.S. stocks. Canadian dividends are taxed much less than interest or income – which is awesome. I own a few U.S. stocks so I find it easier to put them in my RRSP or LIRA.

      I hope this information helped?

      At some point, I’m going to create a cheat sheet (or two) for how to get started in DRIPs. Hopefully that will help you and others who visit my blog ;)

  6. Elemag says:

    @My Own Advisor

    Mark, when I first came to Canada and started investing I was introduced to the MF industry by my financial advisor at Scotiabank. He is very smart and has taught me a lot. The reason I still keep my portfolio consisting of the BNS Dividend Fund and the Scotia Bond Index is that overall my MER is below average and according to the data, my portfolio outperforms the indexes at a lower risk (beta). I haven’t checked how much are the
    end loads if there are any, because I have been investing in those funds since 2006.

    I would like to ask a question somewhat in regard to My University Money’s post. So, now I have enough shares of ENB and BNS to start synthetic dripping. First of all, where would you advise me transfer them- to my TFSA or Self-Directed RRSP. Secondly and more importantly, how would I calculate the capital gains of my holdings? Should I use the average price of my spreadsheet and just multiply it by the number of shares or is this wrong? In the case of ENB things are more complicated because of the recent stock split. Mark, I know I haven’t done my homework on this topic, but could you recommend how should I approach this matter? I thank you in advance!

    • My Own Advisor says:

      @Elemag,

      Thanks for your questions in your comment. I’ll have a deeper look at this over the next few days and get back to you, either here or via your email address – OK?

      Cheers,
      Mark

  7. Great post MOA! Very good post indeed.

    I only know one person of many who has made money with mutual funds, becuase he studies the managers not the funds – most people make nothing! The fees are stacked against them right from the beginning.

    Back in 2010 I sold an AGF Dividend Mutual Fund, it had earned me 14% return over the 12 months (less trailer fees and MER). It’s top holdings were the big banks, and ironically even with the name “Dividend” in it, it paid no dividends. I got about a $5.62 distribution at the end of 2009 from it. Here is the irony.. I sold this AGF mutual fund, and then bought the stock directly – AGF (AGF.B) – the company that owns the mutual fund. I ended up not only with a 6% dividend yield, but a huge gain in capital from my purhcase price of $14.65. To say the least I earned at least double the amount holding AGF stock than holding their products. As Derek Foster said, don’t buy the bank’s products – buy the banks!

    And here is the bigger irony! Had I bought all the banks stocks directly in 2009, I would have made 30% to 50% capital gains on all of them within a year plus the dividend yield. This was after all, was essentially the main holdings in this “dividend” fund. Granted the rise in stock prices during 2009 and 2010 was exceptional, and stock prices went up enourmously – but mutual funds sure didn’t, did they?

    A mutual fund will charge you trailer fees, commissions, and give you paltry distributions. In the end buy the mutual fund company stock, not their products!

    Cheers
    The Dividend Ninja

    • My Own Advisor says:

      Ninja, thanks for the comment!

      Your example was an excellent one and one I wouldn’t have understood myself if I didn’t make some time to read a bunch of books and learn more about investing from them. I too, think back to 2009 and wish I had some extra cash then…because I could have kicked some serious butt in buying a whack of bank and financial stocks. I’d love to own all “Big-5″ eventually. In starting smaller, I did however buy BMO and CIBC since they offerred full DRIPs at the time (and still do). Thanks to low stock prices in 2009, I’ve now got enough BMO and CIBC shares today to earn at least one full share each quarter with dividends paid. These compounding machines are running along now very nicely and I would have never had these powerful wealth creation machines humming if I just stuck with their dividend funds respectively. Maybe that works for some people, I’m just not one of them!

      Gosh, and then there are the trailer fees, DSCs for some mutual funds….oh man…where does it end? It ends when you become an owner in these businesses and not a consumer of their products :)

      Thanks for the support Ninja in my financial journey and blog, always appreciated!

  8. Interesting stats on the recent performance of the banks. I think there is actually still room for growth in Canada’s banks.

    Dividend Ninja, I know there is a guy named Ed Rempel who posts online a lot who advocates studying mutual fund managers to find the “all-stars” and he actually puts forward some pretty compelling arguments for his guys. He is the only one I have ever seen whose data has looked attractive to me.

  9. Awesome post MOA! I’ve put a small blurb on my blog about your post.

    I owned a number of mutual funds for a decade starting in 1990 (including some AGF funds Dividend Ninja mentioned). I sold them all for the same reasons you mentioned in your post. I wish I knew all of this sooner, before I spent thousands in mutual fund fees.

    I agree with Ninja and Foster “don’t buy the bank’s products – buy the banks!”

    • My Own Advisor says:

      @Kanwal,

      Thanks for your comment. Glad to hear I was not alone in my journey! (I guess misery always has some company eh? :)

      Me too, I really wish I knew about ETFs, passive and dividend-investing in my early 20s. Oh well, live and learn and learn some more. Now I need to check out your blog :)

      Cheers,
      Mark

  10. Great post, Mark. I did luck out with a couple of mutual funds that did beat the index for a couple of years, but in others I didn’t do quite as well. In the end as I learned more, I decided to sell them all off and now I stick with index-based investing for the long haul.

    As for the “Buying RRSPs” thing a commentator mentioned earlier, I completely get it. This is how I felt back in college when I didn’t know what the hell a RRSP was and just thought it was some special sort of investment that you bought. I blame the education system for rewarding the big banks and letting them rape us on fees by deciding to fill the cirriculum with other useless material, and I thank the Internet for spreading the real knowledge, on blogs such as this one. :)

    • My Own Advisor says:

      Thanks Kevin! Glad to hear it worked out for you! The ones I held never really bombed, but they weren’t that passive and I did some quick calculations and I probably lost about $5,000 in fees over the time I held them. I can only imagine what I could have done with that $5 K….ah, hindsight.

      No doubt the marketing machines kick into high gear in January, February and early March every year – make a contribution to your RRSP they say! I too got sucked in like millions of other Canadians. Let’s just say I’ve certainly turned the corner, no longer, I’m out of funds for good! Thanks for stopping by Kevin. Now I need to visit your blog and read your latest post :)

  11. jon evan says:

    Interesting discussion MOA indeed!
    The main theme in your article and the comments is FEES. Dividend Ninja makes an astute observation that buying the bank stock is better than buying the bank’s products which IMHO I think includes their index funds and etfs! If you want to buy equities then instead of buying the index products and paying .5%/year which on a large portfolio represents thousands of dollars in fees; instead, unbundle the etf or index fund and buy the stocks you like. Naysayers will say you will lose diversification but you don’t need to own all the financials in an index to get diversification and likewise you don’t need to own all the telecoms or utilities in an index. No one needs that, but not doing that will save you big on fees in the longer term particularly if you have a sizeable portfolio. Yes, save your fees and stay away from equity mutual funds, equity index funds and equity etfs particularly in the domestic market. But, for fixed income fees are different and I think there is justification for buying bond etfs since their MERs are more reasonable and it’s harder to unbundle bond efts and save on fees I think.

    • My Own Advisor says:

      @Jon,

      You got me! Fees! I’m with the Ninja – don’t buy the bank’s products, buy the whole bank!

      I kinda like what you said about fixed income. I too, agree there is justification for buying bond ETFs since their MERs are pretty darn cheap. Do you own bond ETFs?

      Thanks again for your detailed comment Jon, much appreciated.

  12. 101 Centavos says:

    We closed out our kids’ 529 college account with T.Rowe Price after we’d had enough of years of anemic performance —- and fees!

  13. You bring up some great points. But wouldn’t you say there is a time and place for mutual funds? One of teh comments says their parents go and “buy” rsps every year and put them into mutual funds and that’s a bad idea. Well if his/her parents aren’t keen investors, wouldn’t it make more sense for them to purchase mutual funds through a bank and get the help they need. If they are asute investors, yes, ETFs and individual stocks might make more sense. But for the average investor who doesnt want to learn, or doesnt trust themself, maybe the help of a banker at an FI who will assist them in putting money into mutual funds is a good idea. Those mutaul funds will still beat out terms/gics and there are still far too many people in just GICs as they think “stocks are scary.”

    ETFs have gained alot of popularity in the past few years, but there risks are never discussed. Especially with all these new ETFs coming out that are not well diversified at all….such as these new “financials covered call” etfs that promise large yeild. That’s a scary product in my opinion for someone who doesn’t have some indepth knowledge about investing.

    Now i’d never say that ETFs are bad things, they are great products, and i hold them in my personal porfolio. What I’m saying is that maybe we shouldnt paint all mutual funds with the same brush and call them evil. I truly believe there is a time and place for all these products.

    • My Own Advisor says:

      @Financial Rebel,

      Thanks for your detailed comment. Yes, there is a time and place for mutual funds, but I’d argue most investors don’t know how much funds they are losing with funds. If investors are fine with that, fair enough, but I’d bet most wouldn’t be if they knew the facts. Further still, most actively managed mutual funds, and I’m talking at least 80% here over any 10-year period, never beat their index benchmark. So, when you add two key components up, most investors holding mutual funds long-term don’t have a chance of acheiving market returns and they’ll be charged excessive fees for holding them. This doesn’t sound like a good recipe for success. At least it is no longer for me.

      You’re very right, ETFs have gained a lot of popularity in the past few years, but risks are rarely discussed. With all the new ETFs coming to market, it is getting quite ridiculous. I mean really, how creative can companies get with these things? Apparently very much so :) The covered call ETFs are scary indeed. I never plan on owing them.

      What do you think would be the time and place to hold mutual funds? I’m curious about your position; I suppose I could create a post about that?

  14. Trading Tips says:

    I really appreciate your post. It gives an outstanding idea that is very helpful for all the people on the web. Thanks for sharing this information and I’ll love to read your next post too.

  15. Elemag says:

    @My Own Advisor

    It’s much appreciated, Mark! Thank you again!

    • My Own Advisor says:

      @Elemag,

      No doubt you’ve learned a great deal from your Scotiabank rep. and the fact you have found my blog, is another proof that you’re willing to learn more or better still, teach me a bunch of stuff!! Maybe more of the latter? :)

      The fact you have enough shares of ENB and BNS to start DRIPing synthetically is amazing. Great work! I’m not quite there yet with BNS but hopefully I will be by 2013.

      In terms of advice, well, I’m no expert on these things (please read my disclaimer, all content on my disclaimer applies) but I will tell you my TFSA strategy and then you can determine if that might or might not work for you. My plan with my Canadian dividend-paying stocks is to slowly transfer those into my TFSA and not my RRSP, as TFSA contribution room allows. I’m doing for this for a few reasons. One, I like getting my dividends paid to me totally tax-free. Yes, I don’t get the tax-credit but as I get older my TFSA dividend income is not tested by many government programs. I wrote about that in a previous post here.

      My preference is to keep my RRSP for indexed products, for the most part and not dividend-paying stocks. This way, I can almost “set and forget” part of my retirement portfolio and let it index away for another 30+ years. In doing this I’ve basically created only one account (TFSA) I have to actively manage – I like the simplicity of this. I know some folks keep Canadian dividend-paying stocks unregistered (tax-advantages) and some put them in their RRSP, but for me and my objectives, the TFSA works.

      Your question about calculating capital gains is a good one and I should write a blogpost about that, how I keep track of my adjusted cost base (ACB). I received a simple spreadsheet from a friend the other day and it works pretty good:

      http://www.dripprimer.ca/calculate-acb

      You do need to factor in your ENB stock split into your ACB calculations. A stock split, say 2-for-1 like Enbridge will not affect the total ACB but it will affect the ACB for each share. The actual value of the original investment does not change. The current value of the investment does not change. The easiest way for me to calculate this would be to take my previous cost basis per share (e.g., ENB at $40) and divide it by the split factor (2:1). So in this case, it would be $40 per share divided by 2 to get $20 per share.

      More articles about stock splits, here:

      http://www.fiscalagents.com/newsletter/4abcacb.shtml

      http://www.milliondollarjourney.com/calculating-your-adjusted-cost-base-acb.htm

      I hope this information helped?

      Cheers,
      Mark

  16. jon evan says:

    @My Own Advisor
    You know MOA I don’t own fixed income etfs either. I’m still attempting to understand them!
    I own actual bonds, strips and GICs presently for my fixed income portion but many of them are going to mature and as you know the fees involved in buying those are rather cryptic! Have you come across some internet advise making that comparison?

    • My Own Advisor says:

      @Jon,

      Yes, you’re a stock man all the way!! I’m SURE you undertand fixed income ETFs, or are you saying you don’t understand why anyone would own them?

      To answer your question, I haven’t come across any internet advice that compares (really well that is), returns of inidividual bonds vs. bond ETFs, but really though, less the ETF fees (mine around about 0.30% or less), the performance of individually held bonds should be the very same. Coupons payable to bond owners are coupons payable.

  17. Awesome conversation here MOA, thanks for answering all of our questions in depth. I have a couple more for ya if you’re up for it. The first one is just a further suggestion on a USA DRIP blogpost. I am aware of the different USA taxation standards, I know that you can hold a DRIP inside an RRSP, wouldn’t that get rid of the witholding tax? I guess that the big Canadian companies are so diversified these days than when you buy stock in Royal Bank or Enbridge you are getting exposure to the American market anyway. I just lick my chops at stocks like Wal-Mart, Johnson and Johnson, Verizon, 3M, and a few other ultra-stable dividend machines down in the states.

    The second question I had was about mutual fund managers. I have seen some convincing articles looking at specific mutual fund managers over a long period of time. Logic says that there must be a few managers out there who are in the top 5% and will beat the market, even if the average manager fails to beat their index even before fees are talked about. If you have time, check these out:

    http://www.edrempel.com/pdfs/superinvestors.pdf

    http://www.edrempel.com/pdfs/Active%20Share%20Study%20-%20How%20Active%20Is%20Your%20Fund%20Manager.pdf

    • My Own Advisor says:

      @My University Money,

      Bang on – and based on my own experience, you don’t pay any withholding taxes on a U.S. stock held inside an RRSP or LIRA.
      I hold ABT:US and JNJ:US in my RRSP and KO:US in my LIRA. I like what you said about the big Canadian companies, being so diversified. RY, ENB, SLF and more, are really becoming global companies – which is great for investors who have a “home-bias”.

      Geez, you sound like me – anxious for more Wal-Marts, Johnson and Johnsons, etc. I just wish I had the cash in my RRSP to pull the trigger. Next year I should, hopefully U.S. stocks will stay cheap for another year or so? :)

    • My Own Advisor says:

      @My University Money – thanks for the links to Ed’s articles. I will check them out.

  18. @My Own Advisor

    I agree with alot of what you said in your post. For time and place, i would say that most young/new savers would be better suited for mutual funds. I have a huge believe that there is no such thing as market timing, so to new investers, being able to invest a monthly deposit into a mutual fund without having any buy costs would be a great advantage. I’ve seen my fair share of fresh graduates who saved $1000 dollars then go and buy one individual stock. That scares me….and even if they bought one ETF, i’d still say they would have been better to buy $100 blocks every month for 10 months.

    And any seasoned investor would most likely be better off doing their own investing and going toward etfs, but i’d guess that most investors dont know what they are doing, and going to a bank that sells mutual funds(be it with higher MERs) would be in a better situation than the alternative(either beign in terms or puchasing stupid stocks/etfs).
    Have you ever watcheed BNN? It’s insane how much people call in asking about that stupid covered call etf because it pays a 9% yeild right now. The average investor usually doesnt know much and follows the heards, and that’s scary. They look at the now, and not the long term, so for them to do self-investing would actually be more of a negative to their finances rather then the extra charge of MER in a mutual fund.

    But overall, a savvy, well informed investor would be better in ETFs, but most investors or far from savvy and rarely well informed.

    • My Own Advisor says:

      @The Financial Rebel,

      We’re definitely aligned. Yeah, maybe funds might be good for young investors, to learn the ropes if you will, but I know going back 10 years, if I could have known half of what I know now, I wouldn’t have invested in mutual funds. Vanguard products have been available for decades. Alas, we could all say this about life I guess…

      Consistent market timing, you’re right, is really non-existent but it doesn’t take too much brainpower to know that when equities fall, in general, they become cheaper in price. The hard part of this is, can you really pull the trigger on a buy when things around you are falling 10, 20 or even 30%? Evidence shows the large majority of investors can’t. Some can and those that do, create in some cases extraordinary wealth.

      I just hope new investors, whoever they are, or wherever they are and whatever they are reading in terms of personal finance and investing, take some initiative to understand the financial products they are buying and why they are buying them. On that principle, folks shouldn’t buy what they don’t need nor understand. That principle can work wonders for many parts of our lives :)

      I really appreciate your detailed comments, great stuff and contributions.

  19. I’ve never purchased mutual funds for the same reason of fees.

    As for index funds and ETFs, I’ve kept my investment in them limited, because I don’t get to vote in shareholder elections with most index funds and ETFs. The concept of putting forth capital and forfeiting my voting rights is nearly a deal breaker for me, and it’s a social/political/economic view of mine that I will keep my capital mostly away from such investments. Vanguard, for instance, abstains from 92% of shareholder proposals regarding social or corporate policy.

    I use index funds in my 401(k) since that is what is offered (and it’s much better than offering mutual funds), and apart from that, index funds and ETFs are useful for asset classes outside of common stock for me.

    • My Own Advisor says:

      @Dividend Monk,

      I never really considered the value the elections part might have, good point Matt. No doubt the indexing in your 401(k) is better than funds. I also like your point about some ETFs being useful outside of common stocks or in our case, our love of dividend-payers. Provides some very inexpensive diversification.

  20. Elemag says:

    @ My Own Advisor

    Mark, thank you kindly for your post and the valuable information. Indeed, I did read your previous post regarding choosing between TFSA and RRSP, and I accept your arguements suporting the tax-free account. However, don’t you think that if the government may find a way to increase the tax burden on one’s money at the time of withdrawal from a RRSP or RRIF, it may somehow abolish the tax-free benefits of TFSAs as well. We’re both talking hypothetically here, but, hey, the taxman acts in mysterious ways and considering the aging of the boomers, the unsustainable health care, the large deficits of both federal and provincial governments, who knows what the future holds.

    Anyway, I digress and what I shall probably do is transfer one of the companies into my TFSA and the second to the self-directed rrsp. The capital gains will be offset somewhat by the RRSP contribution and any refunds will be put to work in my drip portfolio. I will thoroughly read the articles you have provided and will take care of the tax return next spring.

    Finally, I know I repeat myself, but you’ve got a great thing going with your portfolio, your blog and all these wonderful discussion. You’ve set a great example for us to follow, and we appreciate your help with all the topics. If you travell to Calgary, feel yourself invited for dinner and a few beers! I gotta get back to my job now. Will write again soon. Cheers!

    • My Own Advisor says:

      @Elemag,

      You’ve got a point about the government, they are, if nothing else, unpredictable. Hopefully they don’t change a thing with the TFSA for years, if not decades to come. Sounds like you have a good strategy, one stock into each registered account. Just don’t forget, if you want to, you can run a synthetic DRIP in your RRSP or TFSA with most Canadian stocks. ENB and BNS, you certainly can.

      Thanks very much for the kind words about the blog, very humbling. When I travel to Calgary next, I will try and take you up on that offer for food and drink!

      Cheers,
      Mark

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