September 2022 update - Are you getting the advice you’re paying for?

A lot of Canadian investors don’t realize how much they pay for investing “advice”. When you purchase mutual funds, especially through a bank or major institution, you will likely be invested in funds that charge an overall annual fee of near 2% or more of your investment. That’s because, in most cases, the fee you pay includes a portion, the commission, that goes to the salesperson selling you the mutual fund. Typically, that commission is around 1% annually. 1% might not sound like a lot, but it can be once you translate it to actual dollars. If you have a $50,000 investment portfolio sitting in a bank mutual fund, 1% of that amount is $500 per year. If you have a $100,000 portfolio, that’s $1,000 automatically deducted every year to pay for the bank’s “advisor”. How much advice do you actually get for those dollars? It varies. Some advisors are more educated and trained, they have investment designations like the CFA or the CIM, and they are more proactive in contacting and educating their clients, especially in tough times like these. They are very likely worth your money. Others however aren’t nearly as well trained and don’t communicate often enough, if at all. Once you are in the bank’s funds, they don’t have to work hard to keep your money. But you are still paying hundreds or thousands of dollars on a yearly basis for advice that you may not be receiving. Fortunately, there are alternatives to the typical bank branch model that a lot of investors default to. If you don’t need advice, you can invest on your own with ETFs in a discount brokerage. If you need advice, make sure you work with a credentialed advisor who can commit to providing you a level of service for your hard-earned dollars.

In the markets, there is once again a lot of red recently. August was a down month for most investments. Last week, the Bank of Canada made another large interest rate hike, this time of 0.75%, as it continues to try to bring down inflation. In their statement, bank officials said they expect to continue to raise rates. Meanwhile, the latest U.S. inflation report, published on Tuesday, showed that inflation there is still not coming down, which means that the Federal Reserve will also continue to make large interest rate hikes for the next few sessions. All types of investments fell drastically, including a 4% tumble in the S&P 500 index of U.S. stocks. There is no clear end in sight to the market difficulties, at least not for the next few months, so the best option currently is to remain in safety mode.

Sample portfolio for a Canadian investor

Asset class	ETF ticker	Weight	Performance August	Performance July
Canadian stocks	VCN	2.25%	-1.6%	4.5%
US stocks	VUN	11.25%	-1.3%	8.8%
Foreign stocks	VIU	9.00%	-2.5%	4.4%
US corporate bonds	ZSU	0.00%	-1.2%	1.4%
Canadian corporate bonds	XSH	0.00%	-1.4%	1.3%
Global high yield bonds	MHYB	0.00%	-1.3%	3.5%
Emerging markets bonds	ZEF	0.00%	-0.4%	1.9%
Global real estate	TGRE	2.50%	-4.3%	6.8%
Canadian mortgage-backed bonds	ZMBS	30.00%	-1.2%	0.9%
Canadian government bonds	CLF	15.00%	-1.9%	1.6%
Global government bonds	XGGB	15.00%	-3.1%	2.3%
Gold	KILO	15.00%	-3.0%	-2.7%

Sample portfolio for a US investor

Asset class	ETF ticker	Weight	Performance August	Performance July
US stocks	SCHX	11.25%	-3.9%	9.2%
Non-US stocks	SCHF	11.25%	-5.8%	5.1%
US corporate bonds	SPIB	0.00%	-2.7%	2.3%
Non-US corporate bonds	PICB	0.00%	-8.3%	3.3%
US high yield bonds	SPHY	0.00%	-4.0%	5.9%
Non-US high yield bonds	IHY	0.00%	-3.2%	3.0%
Emerging markets bonds	VWOB	0.00%	-3.2%	3.8%
Global real estate	REET	2.50%	-6.6%	8.4%
US mortgage-backed bonds	MBB	30.00%	-3.7%	3.0%
US government bonds	VGSH	15.00%	-0.9%	0.3%
Non-US government bonds	BWZ	15.00%	-3.1%	-0.2%
Gold	GLDM	15.00%	-2.9%	-2.5%