With the high stock market volatility lately, I haven’t been able to keep myself from checking the big swings in my portfolio value from day to day. I know I should focus on other things, but it’s hard not to check how many weeks of pay I’ve gained or lost each day.
Of course, these swings tend to balance out somewhat over time. A week of volatility is less than 5 times a day’s volatility, and things balance out more over longer periods of time. But still, with these big daily swings, it’s hard to believe that tiny little MERs could make any difference. Consider the following example.
Suppose that at the start of the day yesterday you owned $250,000 worth of large cap Canadian stocks in the form of the exchange-traded fund XIU. By the end of the day you would have lost $2477. The portion of this loss that is due to XIU’s MER is $1.70 (based on 250 trading days per year and XIU’s MER of 0.17%). If the MER had been 2.5%, the day’s MER cost would have been $25.
It’s hard to imagine that a $25 cost matters much when you’re making or losing $2477. But as I said, the market swings tend to partially balance out over time. The difference with MERs is that they always point in the same direction: down. It’s like a runner bolting back and forth on a train that is moving at one-tenth of walking speed. At any given time the train’s movement seems irrelevant, but over time the train manages to make a difference and the runner has just gone back and forth.
I’ll probably keep checking my portfolio daily even though I’d be better off reading a novel. Hopefully, I won’t get any bright ideas about how to juice my returns with some sort of trading. Maybe you can guess what’s going to happen tomorrow based on whether the market was up or down on that last two trading days ...