Canadian Capitalist Logo Dark
No Result
View All Result
Sunday, September 17, 2023
  • Login
  • Register
  • Home
  • Economy
  • Investing
  • Markets
  • Real Estate
  • Retirement
  • Tax Savings
  • Trivia
  • Resources
Subscribe
Canadian Capitalist Logo Light
  • Home
  • Economy
  • Investing
  • Markets
  • Real Estate
  • Retirement
  • Tax Savings
  • Trivia
  • Resources
No Result
View All Result
Canadian Capitalist Logo Mobile
No Result
View All Result
Home Uncategorised

Top Five Reasons to Index Your Portfolio

by Ram Balakrishnan
May 8, 2007
Reading Time: 2 mins read
124 9
0
top brokerage in toronto
152
SHARES
1.9k
VIEWS
Share on FacebookShare on TwitterShare on Linkedin

5. Low Costs: It is an indisputable fact: index funds are far cheaper than actively managed mutual funds. The average Canadian equity fund charges a MER of 2.5% compared to fees that are less than 0.50% for comparable index funds. In other words, a fund manager has to beat the index by more than 1.5% just to break even.

4. Low Turnover: Many mutual funds buy and sell stocks frantically in an effort to beat the market. This activity has two costs: brokerage commissions and substantial capital gains taxes. Individual investors also engage in trading: chasing the latest hot stock or fund or sector and incurring hefty fees and taxes (if they are lucky). Even long-term buy-and-hold investors have to constantly decide if they want to hold or sell a stock. Index investors can truly hold their investments “forever”.

3. Relative Returns: Numerous studies have established that mutual funds, as a group, lag the market by roughly their fees. Individual investors, on the other hand, aren’t so lucky. Since they chase the latest hot performer, they end up with far worse returns. One study showed the average investor earned an annualized return of 3.7% in the 20-year period ending in 2004 when the benchmark S&P 500 earned 13.2%. An index investor is never going to beat the markets but won’t significantly lag the markets either.

2. Transparency: You are never entirely sure what you own with many mutual funds. You might hold a Canadian equity fund that has a portion in cash and a portion invested in US equities at the discretion of the manager. Figuring out your actual asset allocation from a motley collection of mutual funds is a time-consuming and frustrating affair. Index funds, by contrast, are a model of simplicity. If you are invested in a fund that tracks the TSX Composite index, 100% of your money is in Canadian equity and you can figure out your asset allocation in a few minutes.

1. Low Effort: If you directly invest in stocks, you need to spend a lot of time reading annual reports, keeping tabs on the competition and checking out analyst reports. If you already have a day job, you are competing with thousands of really smart money managers who pick stocks for a living and have vast resources at their disposal. You’ll also have to agonize about when to buy and when to sell and worry about keeping your emotions in check. Despite all your efforts, you may still be lagging the market, perhaps badly (most investors haven’t a clue how their portfolios are performing relative to the market). With an indexed portfolio, you’ll get whatever returns the market Gods are willing to give, less modest expenses but you’ll have plenty to time to pursue other interests.

This is my submission for ProBlogger’s Group Writing Project. If you are a blogger, I encourage you to get involved. Also check out Canadian Dream’s Top Five Reasons Personal Finance Blogs Are Better Than the Media.

Related posts:

  1. Book Review: The Little Book of Common Sense Investing
  2. Imputed Rent from an Owner-Occupied Home
  3. Credential Direct Review
  4. This and That
Share61Tweet38Share11

Get real time update about this post categories directly on your device, subscribe now.

Unsubscribe
Previous Post

Book Review: The Four Pillars of Investing

Next Post

The Debate Over Fund Fees

Ram Balakrishnan

Ram Balakrishnan

Related Posts

Why you cant afford a house in Canada

Why You Can’t Afford A Home In Canada?

January 24, 2022
444
investing benefits
Investing

Finding a Financial Advisor, Part 1

June 19, 2021
2.1k
investing in bitcoin

Is it time to invest in Bitcoins again?

May 13, 2019
2k
when do reits liquidate
Uncategorised

Performance of Currency-Neutral S&P 500 Index Funds

January 19, 2014
2k
is mortgage interest tax deductible
Uncategorised

The 2013 Sleepy Portfolio Report Card

January 12, 2014
2k
how to buy individual stocks in canada
Uncategorised

Asset Class Returns for 2013

January 5, 2014
1.9k
Next Post
retirement income investments

The Debate Over Fund Fees

Please login to join discussion
Canadian Capitalist

© 2022 Canadian Capitalist

Navigate Site

  • Home
  • Disclaimer
  • Privacy Policy
  • Advertisement
  • Contact Us

Follow Us

No Result
View All Result
  • Home
  • Economy
  • Investing
  • Markets
  • Real Estate
  • Retirement
  • Tax Savings
  • Trivia
  • Resources

© 2022 Canadian Capitalist

Welcome Back!

Sign In with Facebook
Sign In with Google
Sign In with Linked In
OR

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Sign Up with Facebook
Sign Up with Google
Sign Up with Linked In
OR

Fill the forms below to register

*By registering into our website, you agree to the Terms & Conditions and Privacy Policy.
All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.
two man and woman standing on doorway
The man who does not read has no advantage over the man who cannot read - Mark Twain