Investing is one of the most powerful ways to grow wealth, but many investors don’t realize how much high fees can eat into their returns over time. The good news? You don’t need to pay high management fees to achieve great investment performance. In fact, passive investing through low-cost index funds and ETFs has been proven to outperform actively managed funds over the long run.
Actively managed funds often come with high management expense ratios (MERs), averaging 1.5% to 2.5% per year in Canada. While this might not sound like much, over decades, these fees can erode a significant portion of your portfolio.
Consider this: If you invest $100,000 and earn 7% annually, but pay 2% in fees, you’ll end up with $574,000 after 30 years. If you instead invest in a low-cost ETF with a 0.2% fee, your total would grow to $761,000—a difference of nearly $187,000!
“A low-cost index fund is the most sensible equity investment for the great majority of investors. By periodically investing in an index fund, the know-nothing investor can outperform most investment professionals.” – Warren Buffett
“Don’t look for the needle in the haystack. Just buy the haystack.” – John C. Bogle (Founder of Vanguard)
“The whole concept of trying to beat the market is silly. The way to do it is to own a broad index fund and keep costs minimal.” – Charlie Munger
“The difficulty of consistently beating the market makes passive investment the best choice for non-professionals.” – Benjamin Graham
One of the biggest mistakes investors make is trying to time the market. Instead of jumping in and out based on short-term trends, staying invested in a broad market ETF has historically produced superior results.
| Decade | S&P 500 Total Return | % of Active Funds Underperforming |
|---|---|---|
| 1930s | -0.5% | 65% |
| 1940s | 8.7% | 70% |
| 1950s | 19.4% | 80% |
| 1960s | 7.8% | 75% |
| 1970s | 5.9% | 85% |
| 1980s | 17.3% | 90% |
| 1990s | 18.1% | 92% |
| 2000s | -0.9% | 88% |
| 2010s | 13.6% | 95% |
Investing shouldn’t be complicated or expensive. By choosing low-cost ETFs, staying invested, and avoiding high-fee actively managed funds, you can significantly grow your wealth over time. The evidence is clear: passive investing beats active investing in nearly every decade.
Start cutting fees today, your future self will thank you!
High investment fees can drastically reduce returns over time. Passive investing through low-cost index funds and ETFs consistently outperforms actively managed funds. Investing legends advocate passive strategies emphasizing low fees and long-term investing. Choosing low-cost ETFs, automating contributions, and staying broadly diversified can significantly enhance your wealth.
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