Like most Canadians, I don’t work in the finance industry. (In fact, I work in the computer industry.) Again, like most Canadians, I don’t do my own investment; I give my RRSP money (RRSP is similar to the 401(k) plan in the U.S.) to an investment advisor.
My investment advisor is with Manulife Financial. Like most investment advisors, my Manulife advisor advised me to put my money into various mutual funds. And that was fine with me.
And I know that mutual funds charge money for providing their services, and that was fine with me. They charge a certain percentage of the value of your holdings as their management fees. They call this percentage MER, short for Management Expense Ratio.
The MERs the mutual funds charged me were about 2% to 2.25% (depending on which particular fund), which was a bit higher than usual, but that was still fine with me, as long as the money they made for me was greater than their MER money.
What began to be not so fine with me was when all this financial tsunami started last year. On November 19, 2008, TSX dropped about 345 points to close at 8490.56. The following day (November 20), TSX dropped further to 7724.76, losing 765.80 points.
During that period, most people (if not everyone) lost 40% to 50% of their holdings in investments with mutual funds. Yet mutual funds still charged the same MER money.
If you make money for me, and you take some money from the extra money you made for me, I have no problem with that. But if you lose my money, and still take some money from my original money (the principal), then I really have problem with that.
Yes, there are gains and losses in investments. But if you (as an investment professional) lose my money, you still have the guts to take my money from my pot? To me, that’s preposterous!
As in my blog title: "If we don’t take care of our own money, it will become other people’s money." So in February this year (2009), I decided to sell all my mutual funds and have everything in cash (or money market).
By liquidating my positions, I managed to avoid the new low in March 9 this year. On that day, TSX hit a new low of 7566.94, and Dow Jones also hit a new low of 6547.05.
As of writing, I am still in all-cash (money market) position.
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