In praise of cheap

Marney was bruised after that call with her financial guy.

“You’d think I was asking him to admit to a murder,” she told me. “But all I wanted to know were the damn fees on my funds.”

M deals with a big bank that shall remain nameless (the blue one), has her life savings in their mutual funds – four hundred grand – and this pathetic blog lunched her on a quest to discover what those mutuals were costing. The documents did not spell it out. Nor clearly on the annual statement. Or the online portal. And her guy at the bank – Ted, the mutual fund expert who looked like he was in Grade 12 – was no help. Until she got tough.

“Well,” she told me Friday. “I found out. Worse that I thought.”

Turns out the equity-based funds have an MER (management expense ratio – the fee deducted) of 2.85%. Moreover, there are often distributions of taxable capital gains as the fund manager buys and sells stuff. Plus the mutuals are not liquid in the way ETFs are. You can’t get an accurate fix on what one’s worth until the trading day is over. And a request to cash in fund units can even be denied or postponed if the company faces a deluge of redemptions. Worse (seriously) are funds that have a DSC – deferred service charge – so you have to pay to get out. It’s a mutual funds prison.

Ae Marney and I agreed, 2.85% is ridiculous. The MER is not tax-deductible, like an advisor’s fee on a non-registered portfolio. And given the fact inflation these days is at pretty much the same level, the poor woman has to see her assets rise by at least 6% before she even gets a nose above water. It’s hard to plan a retirement that way.

So, she’s changing. With a portfolio made of ETFs (exchange-traded funds) her fees drop to 0.2%, the assets are completely liquid, publicly-traded, cashable, transparent with no taxable distributions and no service charge. Plus there is no needy mutual fund portfolio manager to support who requires a new Porsche every 24 months.

Incredible as it may seem, Marney’s dalliance with pricey bank mutuals is the norm in Canada. We little beavers have a stunning $2.735 trillion in mutuals, compared with $860 billion in ETFs. Yeah, three times the amount. No wonder Canadian banks are wildly profitable in good times or bad.

Things have been changing, though. More people are understanding that having one ETF holding all the biggest companies on a Canadian or US stock exchange provides growth and diversity at a fraction of the cost of a mutual. So in the first half of this year we chunked about $90 billion into exchange-traded funds and just $23 million into mutuals.

In the past year ETF assets jumped by about half while total mutual funds grew less than 20%. Sometime next year total ETFs in Canada should hut the trillion-dollar mark – but it may be years more before they come to equal that giant, pricey pile of mutuals.

Why?

The banks, of course. Plus a huge (but declining) army of branch-based and neighbourhood mutual fund salesguys. Lots of people do not understand the difference in these investment assets. And, as Marney discovered, it’s tough to learn the true cost of ownership. Changes in disclosure and transparency have been made in recent years, but the regulator has failed to go far enough. Plus, most Canadians (sadly) are financial illiterates. And therefore financial victims.

Over 60% of investors hold mutuals. Just a quarter have ETFs. Of those, only 9% have an ETF-only portfolio. That, by the way, is the only kind my asset-managing buddies build. No individual stocks or bonds or REITs or preferreds. All ETFs, for liquidity, transparency and index-matching performance at low cost.

Yes, there is a fee for a professional to manage portfolios – about 1% or less (tax-deductible on non-reg accounts). But no Porsches are involved.

ETFs give lots of diversification, since one that tracks the S&P 500 or the TSX owns all the big companies at the same time. Energy, financials, industrials – the whole shebang. If one corp lays an egg, you’re not impacted as stockholders are.

Also keep in mind a good portfolio should have global equity exposure (thirds in Canada, the US and international), plus be balanced with 40% of the total in safer, income-producing assets (like bond funds, preferreds, cash equivalents or real estate trusts). And rebalance. At least once a year sell off some of the good stuff and buy the losers, to restore that 60-40 blend. After all, you have no idea what next year will bring.

Diversity and balance defeat volatility. Meanwhile having a quarter of the portfolio denominated in US$ helps counter currency risk (and has lately yielded a nice bump).

So far, 2026 has been a boffo year for this kind of portfolio, which is designed for greater security, predictability, consistency and – Marney’s fav – economy.

“My greatest guilty pleasure,” she shared, “was telling my advisor where to stick it.”

Oh dear.

About the picture: “Greetings Mr Turner from ten Ptrairies,” write Kris and Colleen. “We are pleased to answer your Canine Call of images worthy of your insightful and free blog of all things financial and important to help navigate the vagaries of the Canadian economy. Stressful days indeed, but as you have intimated in past Turner Blog advice, sometimes the best action to take is no action, and that patience saves the day.To that end, take the example of SkipTheWonderDog as he ignores the noise and contemplates his nap time.”

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Source: https://www.greaterfool.ca/2026/07/06/in-praise-of-cheap/