Regular readers of this blog are very familiar with the arguments that seemingly small costs can cause big damage to your portfolio over an investing lifetime. To make this more clear, I’ve proposed the MERQ (Management Expense Ratio per Quarter century) as a better measure than a single-year MER.
One thing I’ve discovered about the MERQ in casual discussions is that many people simply don’t believe it. For example, the Investors Group Beutel Goodman Canadian Balanced Fund Series A has an MER of 2.89% which translates into an MERQ of 51.4%! This means that after 25 years, more than half of your portfolio would be consumed by fees.
In contrast, a balanced portfolio of index ETFs from iShares (XIU and XBB) has an MER of 0.235% for an MERQ of 5.7%. So, a portfolio that would have come in at a million dollars without fees would end up with $486,000 with the Investors Group fund and $943,000 with the iShares ETFs.
This difference is so large that people are skeptical that it is real. This makes me even more interested in popularizing MERQ. We need to be discussing real impacts on portfolios and not hiding them with seemingly tiny MER percentages like 1%, 2%, or 3%.