Thursday, February 9, 2012

MERQ is Too Extreme to be Believable

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% (as of 2012 Feb. 9) 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%.


  1. Well done Michael! One of your best ideas!

  2. Nice analysis.

    This is actually what first drove home the importance of low-cost investing for me several years ago. Someone presented a table of figures showing the effect of two percentage points of MER over a 30-year investment lifetime. As you point out, it's staggering.

    Perhaps you should approach Investors Group about licensing the idea for their marketing material?

  3. @Dan: Don't give away my secrets. I'm planning to sell the copyright on MERQ to Investors Group and sell an improved electric car design to Exxon.

  4. I think you should present it on Dragon's Den.

    You probably won't get a deal, but at least it will get some publicity.

  5. @Anonymous: Thanks for the kind words.

    @Mike: It would be fun to apply MERQ to some O'Leary funds while making a pitch on Dragon's Den.

  6. I have had many "discussions on the phone with Great west life on how they should show what actual growth I have with the money I have invested with them, as well as the money THEY have made off the money I have invested with them.
    There should be legislation forcing all fund companies to disclose that as running cumlative totals very clearly on the statements.

    They certainly have a lot of reasons why they can't do it when you ask.

  7. @Paul: You're on the right track talking about legislation because it won't happen voluntarily. I've made my pitch to replace MER with MERQ and I'll probably keep trying.

  8. I think this is a great idea!! The costs over time are huge!

  9. I've tried, in vain, to argue with friends as to how expensive their investments are. Is there a calculator somewhere which enables me to demonstrate to them the effect of a MER of x over y years?

    1. @David: A quick search for "MER calculator" turned up

      This one seems easier to use than the others I looked at.

  10. This has always been my favorite calculator to clearly show this to anyone who wants to see this..

    good luck