“Welcome to the PlanEasy blog! We make personal finance easy.

Thanks for visiting.”

– Owen

The Effect Investment Fees Have On Retirement Planning

The Effect Investment Fees Have On Retirement Planning

Everyone is talking about investment fees these days. There are ads on the radio, television, and online… there are podcasts, websites, blogs dedicated to low-fee investing… there are also books, magazines and research studies… all focused on one thing… how much the average investor pays in fees while saving for retirement.

But very few people are talking about the effect investment fees have on retirement itself. Mostly they talk about how fees impact you as you save for retirement, but very few mentions what happens if you continue to pay high fees as you enter retirement.

Fees definitely have an enormous impact on how much you can save for retirement. The average mutual fund fee is 2.35% in Canada, and that’s the average, there are lots of situations where the fee is even higher. The effect of this fee on a lifetime of savings and investments is enormous!

But what if you’re close to retirement? What is the impact then? Arguably the effect of investment fees on retirement planning is even greater than any other period.

Why?

Fees have an enormous effect on retirement planning because by the time we’ve reached retirement we’ve already saved up a huge nest egg. Unlike the accumulation phase, where you have limited assets in the beginning, when it comes to retirement, you’re starting with a huge amount of investment assets. This makes the impact of fees enormous, especially in early retirement.

The problem for retirees is that investment fees are hard to spot, hard to find, they’re almost hidden by investment providers, whether that is intentional or not. I’ve seen this on countless investment statements I receive from clients. Based on the statement alone you would NEVER know how much they’re paying in investment fees each year.

This isn’t an isolated issue, it’s a problem that many, many retirees face. Low-fee investing is a relatively new option in Canada. If you were investing 10-20+ years ago there just weren’t as many options to reduce your investment fees.

Many retirees who have high-priced investments are shocked (and somewhat saddened) to learn exactly how much they’re paying each year. It’s not their fault, this information is hard to find and not readily available to investors.

To figure out how much an investor is paying each year usually requires some digging. Mutual fund codes vary by fund and fund class. Sometimes fees can vary by 1% or more for the same mutual fund depending on the class.

But once you know how much you’re truly paying you can start to see the impact it will have on your retirement plans. There are two main effects that high fees can have on retirement, and the impact can be substantial.

read more
What Is An ETF? And How Do They Work?

What Is An ETF? And How Do They Work?

ETFs have taken over the world of investing. Everyone is getting behind ETF investing, from DIY investors to Warren Buffet, from robo-advisors to huge institutional investors. But what is an ETF? What does ETF stand for? And how do they work?

ETF stands for Exchange Traded Fund… what that means is that it’s a collection of investments, stocks, bonds etc, and those investments are grouped together into one fund that you can purchase and sell on the stock exchange.

This is slightly different than mutual funds. Mutual funds also hold a collection of investments but you purchase them through the fund provider and at a set price at the end of the day based on how much the fund is worth.

The difference is subtle but it matters, and I’ll explain why.

ETFs have grown in popularity over the last 10-years. One of those reasons has to do with low-cost index investing. Index investing is when a fund (could be an exchange traded fund, or it could be a mutual fund) tries to replicate the returns of a particular index. And an index could be anything.

For example there is an S&P 500 ETF that aims to replicate the returns of the S&P 500, a collection of the 500 largest companies in the US. An index could also be a bond index, in this case a bond ETF aims to replicate the return of a certain type of bond, maybe corporate bonds, maybe government bonds, maybe high-risk/junk bonds etc.

The amazing thing about ETFs, especially index ETFs is how little they cost, how highly diversified they are, and how simple they makes investing for the average person.

But how do ETFs work?

It’s a great question.

read more
Setting The Right Asset Allocation For RESP Investments

Setting The Right Asset Allocation For RESP Investments

One of the hardest things about RESPs is choosing the right investment and managing the allocation between stocks and bonds. There are so many RESP investment options and it becomes especially challenging when families have more than one child. When families have a few children, who are perhaps a few years apart in age, it becomes very challenging to set the right asset allocation for the investments inside the family RESP.

Why is it important to set the right asset allocation?

Asset allocation is a large driver of risk. The more equity assets in a portfolio, and the less fixed income assets, the more risk. There is always risk when investing, whether that be in stocks or bonds, but stocks have always had a “risk premium”. That means they have a higher risk but also a higher return.

When managing asset allocation in an RESP we need to be very careful because were typically investing over a few different time horizons.

A 16-year old high school student is going to have a very different asset allocation in their RESP than a 4-year old pre-schooler. We want to make sure the 16-year old has money for post-secondary in two years and isn’t going to lose half of their education fund during a downturn. On the other hand, our pre-schooler has loads of time, so we can take on a bit more risk and hopefully grow their education savings over the next 14+ years.

It’s these different investment horizons that make investing inside an RESP especially challenging (even more so for self-directed RESPs where the individual investor is making all the decisions).

Typical investment horizons for RESPs include…

read more
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Owen Winkelmolen

Fee-for-service financial planner and founder of PlanEasy.ca

“Welcome to the PlanEasy blog! We make personal finance easy.

Thanks for visiting.”

– Owen

New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

The Effect Investment Fees Have On Retirement Planning

The Effect Investment Fees Have On Retirement Planning

Everyone is talking about investment fees these days. There are ads on the radio, television, and online… there are podcasts, websites, blogs dedicated to low-fee investing… there are also books, magazines and research studies… all focused on one thing… how much the average investor pays in fees while saving for retirement.

But very few people are talking about the effect investment fees have on retirement itself. Mostly they talk about how fees impact you as you save for retirement, but very few mentions what happens if you continue to pay high fees as you enter retirement.

Fees definitely have an enormous impact on how much you can save for retirement. The average mutual fund fee is 2.35% in Canada, and that’s the average, there are lots of situations where the fee is even higher. The effect of this fee on a lifetime of savings and investments is enormous!

But what if you’re close to retirement? What is the impact then? Arguably the effect of investment fees on retirement planning is even greater than any other period.

Why?

Fees have an enormous effect on retirement planning because by the time we’ve reached retirement we’ve already saved up a huge nest egg. Unlike the accumulation phase, where you have limited assets in the beginning, when it comes to retirement, you’re starting with a huge amount of investment assets. This makes the impact of fees enormous, especially in early retirement.

The problem for retirees is that investment fees are hard to spot, hard to find, they’re almost hidden by investment providers, whether that is intentional or not. I’ve seen this on countless investment statements I receive from clients. Based on the statement alone you would NEVER know how much they’re paying in investment fees each year.

This isn’t an isolated issue, it’s a problem that many, many retirees face. Low-fee investing is a relatively new option in Canada. If you were investing 10-20+ years ago there just weren’t as many options to reduce your investment fees.

Many retirees who have high-priced investments are shocked (and somewhat saddened) to learn exactly how much they’re paying each year. It’s not their fault, this information is hard to find and not readily available to investors.

To figure out how much an investor is paying each year usually requires some digging. Mutual fund codes vary by fund and fund class. Sometimes fees can vary by 1% or more for the same mutual fund depending on the class.

But once you know how much you’re truly paying you can start to see the impact it will have on your retirement plans. There are two main effects that high fees can have on retirement, and the impact can be substantial.

read more
What Is An ETF? And How Do They Work?

What Is An ETF? And How Do They Work?

ETFs have taken over the world of investing. Everyone is getting behind ETF investing, from DIY investors to Warren Buffet, from robo-advisors to huge institutional investors. But what is an ETF? What does ETF stand for? And how do they work?

ETF stands for Exchange Traded Fund… what that means is that it’s a collection of investments, stocks, bonds etc, and those investments are grouped together into one fund that you can purchase and sell on the stock exchange.

This is slightly different than mutual funds. Mutual funds also hold a collection of investments but you purchase them through the fund provider and at a set price at the end of the day based on how much the fund is worth.

The difference is subtle but it matters, and I’ll explain why.

ETFs have grown in popularity over the last 10-years. One of those reasons has to do with low-cost index investing. Index investing is when a fund (could be an exchange traded fund, or it could be a mutual fund) tries to replicate the returns of a particular index. And an index could be anything.

For example there is an S&P 500 ETF that aims to replicate the returns of the S&P 500, a collection of the 500 largest companies in the US. An index could also be a bond index, in this case a bond ETF aims to replicate the return of a certain type of bond, maybe corporate bonds, maybe government bonds, maybe high-risk/junk bonds etc.

The amazing thing about ETFs, especially index ETFs is how little they cost, how highly diversified they are, and how simple they makes investing for the average person.

But how do ETFs work?

It’s a great question.

read more
Setting The Right Asset Allocation For RESP Investments

Setting The Right Asset Allocation For RESP Investments

One of the hardest things about RESPs is choosing the right investment and managing the allocation between stocks and bonds. There are so many RESP investment options and it becomes especially challenging when families have more than one child. When families have a few children, who are perhaps a few years apart in age, it becomes very challenging to set the right asset allocation for the investments inside the family RESP.

Why is it important to set the right asset allocation?

Asset allocation is a large driver of risk. The more equity assets in a portfolio, and the less fixed income assets, the more risk. There is always risk when investing, whether that be in stocks or bonds, but stocks have always had a “risk premium”. That means they have a higher risk but also a higher return.

When managing asset allocation in an RESP we need to be very careful because were typically investing over a few different time horizons.

A 16-year old high school student is going to have a very different asset allocation in their RESP than a 4-year old pre-schooler. We want to make sure the 16-year old has money for post-secondary in two years and isn’t going to lose half of their education fund during a downturn. On the other hand, our pre-schooler has loads of time, so we can take on a bit more risk and hopefully grow their education savings over the next 14+ years.

It’s these different investment horizons that make investing inside an RESP especially challenging (even more so for self-directed RESPs where the individual investor is making all the decisions).

Typical investment horizons for RESPs include…

read more
Page 1 of 3712345...

New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

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