Reduce your administration costs and retire early

You’re 30, 40, or 50 and you’ve accumulated tens of thousands of dollars in savings in RRSPs and TFSAs. At this rate, you will be able to retire at the age of 65. But you can raise more money without doing anything extravagant – just look closely at the costs of managing your investment. You don’t even have to search, this information is entered into your data – a commitment in Quebec since 2014.

Many savers underestimate the impact of administrative fees on their fortunes, despite all the communication efforts made by organizations such as Autorité des marchés Financiers (AMF) and the Institut Québécois de Planning financier (IQPF). That money, which pays your fund managers – and your financial advisor – can reduce your return on investment by tens of thousands of dollars. according to Calculator, AMF’s online tool, if you invested $ 8,000 annually over the next 30 years in funds with an average annual return of 6%, you would have raised $ 388,122 in 2051 if the management fee was 3%. If it’s 0.5%, your net worth is $ 616,002. That’s $ 227,880 more for you!

“Unfortunately, few people do this type of calculation,” notes Dennis Preston, an accountant, freelance financial planner and lecturer at HEC Montreal.

There is no correlation between higher management fees and better performance, Dennis Preston continues. According to rating company Morningstar, the average fee associated with these equity funds in Canada is 1.98%, compared to 0.59% in the US. In Canada, only 2.9% of these equity funds beat the Canadian index over five years, compared to 22% in the United States, according to a report by S&P Dow Jones Indexes.

Once we know the annual costs, it remains to reduce them. Michel Garibi, a financial education analyst at the Arab Monetary Fund, advises to tackle the problem with his investment advisor. “You should ask him if he offers low-fee mutual funds,” he recommends.

Before choosing an investment fund, it is your responsibility to read the prospectus: the number in the “Management Expense Ratio” (MER) item corresponds to the management and operating expenses in relation to the fund’s net assets. If this ratio exceeds 1%, you may want to opt for another investment product, Dennis Preston suggests. Among other things Exchange of traded funds (ETFs) – whose asset mix matches your investor profile. He says that these baskets of securities, “similar in configuration to mutual funds,” can be purchased by opening an online brokerage account. “Management fees could be as high as 0.20%,” notes the financial planner.

If the markets aren’t familiar to you, you can entrust your money to an automated advisor. (There are about 10 of them in Canada, including Wealthsimple, and others, like BMO Smart Wallet, associated with established financial institutions.) These accounts manage ETF portfolios on your behalf, for an average fee of 0.5%, plus fees on ETFs. .

Reducing the costs of managing your investment may be the most profitable option in your life.