The typical person will invest for many years, but we express investment costs with yearly percentages that are misleadingly low. I propose that for recurrent costs that accumulate, we use an investing horizon of 25 years to express these figures.
For example, instead of talking about a fund's MER, we would talk about its MERQ (Management Expense Ratio per Quarter century). This would give investors a better feel for the effect of recurring costs. In another example, if an investor's portfolio concentration creates a drag on returns, we should look at the effect over 25 years rather than just one year.
In a recent article, Jonathan Chevreau observed that Investors Dividend A Fund has an MER over 2% higher than that of iShares Dow Jones Canada Select Dividend Index Fund (XDV/TSX) despite the fact that they have substantially the same holdings. Even if we add 1% to the MER of the iShares ETF to account for the cost of advice as Canadian Capitalist suggests, the percentages are 2.69% vs. 1.53%. The difference in these percentages doesn't seem like much, but if we look at MERQ (plus the cost of advice for XDV), we get 49% vs. 32%. This is a more meaningful comparison. Would you rather give away half of your money to Investors Group or one-third of your money to iShares and an advisor?
If you can handle your own investments, then you only have to give iShares 12.4% of your money over 25 years. Going even further, the MERQ of Vanguard's Total Stock Market ETF (VTI) is only 1.73%. Seeing cost figures ranging from under 2% up to 49% ought to make investors think.
In another example, I recently concluded that a portfolio of 20 randomly-selected stocks would underperform the index by 0.51% per year based on a paper by Meir Statman. If the stocks owned by dividend investors are no better than random, then a 20-stock portfolio would lose 0.51% per year to the index due to increased volatility. Based on some of the comments on that article, it seems that investors are unconcerned about such a small percentage of drag. But, if we say that the drag (dragQ?) is 12% over 25 years, it seems more troubling. Of course, most dividend investors don't believe that their stocks are no better than random, but that's a discussion for another day.
Even if the world doesn't like the idea of adding a "Q" to the end of MER and other measures, I think the fundamental idea of taking a longer view would help investors.