Tuesday, November 17, 2009

Investment Fee Creep

I used to own a mutual fund that kept performing worse and worse as time went on. This was in the early days when I investing in high fee mutual funds because I did not know any better. Today I know better. One thing that I saw with a couple of funds I owned was something I called "fee creep".

Fee creep is a real simple concept. In essence, it is when a mutual fund slowly and quietly increases its management expense ratios over time. For example, assume that a mutual fund started with an MER when you bought it of 1.50%. Shoot forward three years and you notice that the MER on that same fund is 1.52%. That may not seem like much - it is an extra $2 on a $10,000 investment. However, when you compound that over a period of 25 years it can become very substantial.

The solution? Simple. The first thing you can do is keep your fees low to start with and then you will not need to worry about it too much. The second thing is to review your fund's MER from time to time to see what is happening with them. If they have gone up, then ensure that your returns have also been going up. If your returns are down in that fund and the fees are still higher then move your money elsewhere. These days, there is enough competition that mutual fund fees should be going down. Do not settle for rising fees if performance does not improve.

This article was written by The Dividend Guy. You may email questions or comments to me at info@thedividendguyblog.com.

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