Look What happens to the Top Investments of our Time if you subtract a 2.5% MER fee

Controlling your investment expenses can be just as important as choosing where you invest.  Even a 2.5% MER can turn a good investment into a below average investment.
    A 2.5% MER doesn't just hurt if your asset increases at an average rate, it hurts your top investments classes just as much.  That is because, the MER is an annual tax on your balance, and will reduce your final balance by the same percentage regardless of the market returns that you achieve.  For example, if you held an investment for 19 years with a 2.5% MER, your final balance would be 38.19% less of the full market value if you weren't charged any fees.  A $1,000 investment in AMZN at the IPO would create a $511,067 investment balance or $315,912 with a 2.5% MER.  That same time period with a 5% market return would turn a $1,000 into $2,527 investment balance or a $1,562 balance with a 2.5% MER.
    Investing a $1,000 with a 2.5% MER, you would turn a $290,312 investment in the S&P500 into $65,183, a $28,256,362 investment in Berkshire Hathaway into $7,200,548, a $172,160 investment in AAPL into $69,199, a $590,952 investment in MSFT into $276,497, a $511,067 investment in AMZN into $315,912 and a $15,027 investment in GOOG into $11,090.  Not counting GOOG and AAPL, you could be leaving a house because of MER fees off a $1,000 initial investment.


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Credit Card Nerd Math

Warren Buffet starting buying Berkshire Hathaway stock in 1962 at only $7.60 a share.  Today that same stock is worth $214,748.37.
    If you held that one stock in a fund charging an annual MER, then you would have significantly less.  In fifty-four years the value of your fund would only be $72,133.66 if you had a 2% annual MER fee, which is 33.6% of the regular balance with no fees!   The math works like this: $214,748.37 x (0.9854) = $72,133.66.
    The numbers are even worse with a 2.5% MER fee attached to your investment account.  In fifty-four years your balance would be only $54,724.16 if you had a 2.5% annual MER fee, which is 25.5% of the regular balance with no fees!   The math works like this: $214,748.37 x (0.97554) = $54,724.16.     Even shorter periods such as buying into the Microsoft and Apple Computer's IPO would have your investment cut in half if you had a 2.5% MER.



$1,000 Balance minus an annual 2.5% MER Fee for some the Top Investments of our Time

Year

Stock

No Fee

2.5% MER

1957

S&P 500
(Total Return)

$290,312

$65,183

1962

BRK.A

$28,256,362

$7,200,548

1980

AAPL

$172,160

$69,199

1986

MSFT

$590,952

$276,497

1997

AMZN

$511,067

$315,912

2004

GOOG

$15,027

$11,090


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A Wake Up Call

Hopefully this will be a wakeup call to anybody that thinks that MER fees don't matter.  They do matter, and you should talk to or consider leaving your advisor if you think that you might be paying too much in MER fees.
    Note; a high MER doesn't necessary mean that you will achieve below average returns.  Some mutual funds and mutual fund operators can achieve higher returns despite the higher MER fess.  Also note, that if the fund you are invested in are achieving AMZN, GOOG or AAPL type of returns, you may want to suck it up and pay the high MER fees and take advantage of the higher rates of return.


Data Sources:
Historical data and current stock prices
Historical S&P 500 Total Return Calculator