Investing Investments [NOT 25/2/23]

Here in Canada, it is RRSP season (RRSP = Registered Retirement Savings Plan similar to the US’ 401K) where an individual can contribute to their retirement a certain amount based on their income tax free.

So we’re bombed at this time of year with financial company and bank ads demanding that we plebes dump our money into their particular hands and their financial acumen.

I used to listen to that, but I learned (almost too late) that there is a price for that “expertise.” It’s the Management Expense Ratio. Basically, it is the “cost” of running said fund including fees, escorts and coke, Porsches plus whatever else they want to charge you. And the worst part is they take their cut before you get your cut.

Your actual return in any fund can be expressed as a percentage = Fund’s Current Rate of Return% – MER%. Considering the shitty state of the world stock markets that Fund’s Current Rate of Return will more than likely be in negative terms. Remember: it does not matter if YOU don’t make money, the financial org will always get their cut.

You Ask: “So, Mr Writer of This Post, what does this all mean?”

Most actively managed funds don’t beat the market (usually the Standard & Poor 500 aka S&P500) year over year. The only ones that did were Ponzi Schemes like Bernie Madoff’s or Private Hedge Funds who require you to be rich as hell to join. Assuming you’re just a normal person, this means investing in a actively run mutual fund will have a very high (3-4%) MER (BTW, private hedge funds have an even higher MER.) Mathematically this means if you have a very good year and beat the market by 2-4%, your rate of return will be basically the market rate. So an “average” year means you’re going to make considerably less than the market rate. A bad time like the last two years means you’re losing a lot of extra money.

I’m just a plebe who wants a retirement (LOL) that won’t make me starve. I decided to put the meager funds of my RRSP into broad based index funds because they usually have very low MERs. This means I won’t beat the market because I bought into the market, but it also means I won’t make someone else rich at my expense.

However, the problem with index funds is that when the shit market hits the fan, it really hits the fan (like now.) You take the good, you take the bad, you take them both and there you have the (very basic) facts of the broad based index fund. Even if you don’t have money invested, this is just something to keep in mind when you do get some cash for investments.

PS: This is just one finance idiot’s opinion and please consult an actual financial professional before making any decision.

FYI, if The Donald actually invested his “$500” million worth in 1982 into S&P500 based index funds, the Donald by 2015 would have been an actual billionaire several times over. Forbes sez no, but Forbes estimates seem to be based on fantasy (cough Kanye cough the Kardashians cough.)

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9 Comments

  1. One thing that has surprised me about withdrawals from college funds is how little verification there seems to be. You don’t have to do a direct transfer to a college — you can just ask for a transfer to your bank account and say it’s for tuition. Maybe somebody checks if your kid is actually taking classes? It doesn’t seem like it.

    • If I play amateur psychologist here… just spitballing here based on Scott’s actions/words in the past decade or so but I suspect that Dilbert was Scott’s ideal self and the pointy headed idiot boss was the real Scott.

      The Family Circus guy, Bill Keane, never had a racist breakdown like Scott did and I really hate Family Circus.

  2. I *had* a tiny retirement account of the “managed” sort, when I left the place I got “fired but notĀ fired” from…

    And just like you explained, the fees ate the whole damn thing up!šŸ™ƒ

     

    The process to change it over/into an IRA was incredibly complicated, and I didn’t have an IRA to transfer it into… the taxes to draw the money out would have eaten the thing up, annnnd since I was dealing with recovery from my surgery, and trying to go back to college & change fields, I could see that the damn account (less than $300 bucks, because I was only at the job for a year) would be so eaten away by that $25.00 “management fee” every quarter, before I’d have another job with a retirement options, that I may as well ignore the dumb thing & let it go.

    Because thereĀ wasn’t any option *in* the account, to just “let it ride” andĀ not be stupid by “actively” managing it (shifting crap back & forth, at the whims of the tradersšŸ™„), and you couldn’t easily reach anyone to tell them “put it in an index fund”–they WANTED to “manage” it, to get those fees.

    It was stupid, and a slow way for them to earn all the money in short-term employees’ accounts.

    TheĀ only good part, was that in our/my case, there hadn’t been any “employee match” put in, so it wasn’t*my* money that I was losing. It was all from our employerĀ putting money into the account *for* us–they offered it as a benefit, it wasn’t something *we* had to pay into (they also payed all of the health insurance premium–we just had to cover our deductible for the year).

    • I’ve known so many people who had some variation of “I had money in a savings account and the fees ate it all” including retirement accounts like that. Especially going to school in the South where Wells Fargo was like that’s a nice savings account, sure would be a shame if we nickeled-and-dimed you with fees and FUCKING TOOK IT ALL.

      • That nickel & dime-y stuff is honestly why I still bank back home, as opposed to banking at a bigger bank.

        The account type i have costs $6.99 a month, allows me (nowadays, anyway) to do most stuff digitally, I can literallyĀ call my hometown folks and get anything I need done, hassle-free, and the only other charge possible, is an overdraft–which costs just a bit under $30.

        If you’re already overdrawn? They won’t try to cash another check, they just deny it, and if you have a bunch of stuff running through in one day, it DOES take out the smaller checks first, rather than–like WF, Huntington, and many others, taking the *largest* one first, and making you overdraft *multiple* times over.

        The bank i bank with is over a hundred years old, survived the Depression by banking honestly, and that’s how they’reĀ stillĀ around–folks who bank with themĀ know they aren’t trying to screw us over…

        Heck, my family’s now on the 4th, (maybe 5th!) generation of people who’ve banked there!šŸ˜‰

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