ETF Index Investing Course
4. What is an ETF & Fee Comparison
Don't have Excel?
You can also open and edit any spreadsheets using Google Sheets for free. Here's the link for more info on Google Sheets:
If you run into any problems and need help then just let me know in the comments section at the bottom of this page.
Cheers,
Kornel
8 Comments
KYle
January 13, 2020THAT IS INSANE! A million in fees over your lifetime, wow. Mind blowing! Thanks for highlighting this fact!
I am curious, would a balanced mutual fund portfolio ever outperform an ETF, enough so it would justify the fees?
By Kornel Szrejber
January 16, 2020Hi Kyle. Great question. There are some high-fee, actively managed mutual funds that do at times beat the index ETFs. The problem however, is that this is rare, and nobody knows which mutual funds will be the select few that actually beat the index ETFs.
Even if you pick one that does actually beat the index in a given year, the research shows that it is very unlikely for that mutual fund to continue to beat the market long term. In other words, the odds are REALLY stacked against you that you or I are able to pick an actively managed mutual fund that makes enough money to consistently beat the market after their fees are factored in.
The best site that I’ve been able to find that shows this REALLY clearly and accurately is this one:
https://us.spindices.com/spiva/#/reports
In there, they show you how many actually end up outperforming for the different countries/indexes. For example, as I write this, over the last 5 years, 88% of Canadian equity funds underperformed the Canadian Index (the S&P/TSX Composite).
Seth
October 15, 2018Hi Kornel,
As per the spread sheet, what do you mean by “Fee weighted average”? Ex, 0.146%
By Kornel Szrejber
October 17, 2018Great question Seth. This is the total fees your are paying as an average. However, the reason it’s “weighted” is because we don’t just want to take a straight average of all the management fees and MERs because we don’t have an equal percentage in each ETF. I’ll explain with an example:
Ex. We have more in XIC (the Canadian index) than in the emerging markets (XEC). Therefore to get the average fee for those two, we can’t just average out those 2 MERs because that would assume that we are holding an equal amount of XIC and XEC. Therefore, in my calculation on the spreadsheet, I factor in how much we are holding of each ETF, and this makes the fee number we are seeing more accurate.
Therefore, the calculation looks at what the fee is of each ETF, and then adjusts to total average fee we are paying as a whole, based on how much we are holding of each ETF. In my paragraph above, I used a simple example with 2 ETFs, but the formula in the spreadsheet applies this to all the ETFs and fees that we enter into the spreadsheet.
Does that help?
If something is unclear, just let me know and I’ll elaborate.
Hope you’re enjoying the course!
Kornel
Lee-Anne Ekland
September 12, 2017Hi Kornel,
Thanks for the great course. I am learning a ton so far.
I have a question about the spreadsheet. You said that the portfolio column doesn’t show the actual growth due to the fees that will be included and reinvested. This doesn’t make sense to me as the fees are taken out of the portfolio, not added to it.
The portfolio column shows the accumulation of contributions over the years multiplied by the estimated annual return. The fees associated with growing this portfolio are not subtracted from the portfolio so in essence, wouldn’t this portfolio’s growth be reduced by the annual fees? I would like to see a column that reflects this.
Maybe I misunderstood.
Anyway, I would appreciate hearing back from you 🙂
Lee-Anne
By Kornel Szrejber
October 22, 2018Hi Lee-Anne,
Great question.
What I’m saying here is that the extra fees being paid in the high fee mutual funds would instead remain invested using ETFs. This would therefore grow the portfolio even more especially due to compounding. The ‘Portfolio’ column doesn’t factor that in, so that’s why I say that your total benefit is actually more than what appears on the spreadsheet because not only are you saving on fees, but you are also earning returns on those fees saved, and experiencing compound growth.
You’re right, the ‘Portfolio’ column doesn’t subtract the fees. I designed it this way because to do that I would have to create a column for the portfolio using just ETFs and one using just mutual funds. I did it this way to keep it simple on purpose, to help illustrate the point. With that said, I really like your idea. What would be neat is to have a separate spreadsheet showing this additional detail. That way, those that really grasp the concept and want to increase the accuracy and complexity have the option to do so. I’ll add it to the list. Thanks!
Marshall
September 13, 2016Kornel,
An absolute amazing job man. I am loving the videos so far. I would consider myself a beginner when it comes to ETF’s and Index Investing, although I know more about them than the majority. So, with that being said, I wanted to compliment you on the speed of which you are moving through the slides. I find the tempo great. Not too fast, not too slow.
Thanks for all the great info so far!
Marshall.
By Kornel Szrejber
September 22, 2016Awesome! Thanks so much for the feedback Marshall!
Kornel