At a recent member event for Rock Star Real Estate out of Oakville, Tom Karadza talked about the true cost of management fees charged by managed funds.
Tom quoted a recent book he was reading by Tony Robbins “Money Master The Game” where we heard about the hidden fees charged by managers.
“Most people don’t do the math, and the fees are hidden. Try this, if you made a one-time investment of $10,000 at age twenty, and, assuming 7% annual growth over time, you would have $574,464 by the time you’re nearly my age[eighty]. But, if you paid 2.5% in total management fees and other expenses, your ending account balance would only be $140,274 over the same period.”
Someone’s making out well in this scenario but it’s probably not you or I.
So if mutual funds by the way of Registered Retirement Savings plan(RRSP) aren’t a rewarding way for Canadians to save, what is?
To reduce the fees I was looking at paying, from purchasing RRSP’s, I opened a discount broker account at my bank. Which is a way for investors to self direct which stocks and bonds they wish to buy, but without all those fees.
My choices to buy were well established companies stock at a fairly steep price or lesser known ones that may be equivalent to rolling a pair of di’. I liked the idea of buying funds that paid you back(dividends), however it would take years to make any significant gains and get a decent return on my investment.
Through more investigation and planning, I realized if I saved that same amount that was set aside for mutual funds and paid down the mortgage on my investment properties I would get a nice return later.
The benefits of owning Real Estate in Ontario are 3-fold.
- I am leveraging my initial investment by using 80% of the banks money to about only 20% of mine. So as my property appreciates at around 5% a year (may vary) it is based on a much larger amount then it would be using only my own.
- The benefit is that someone else is helping make my monthly contributions by way of paying down my mortgage.
- And finally, I can defer paying capital gains(the taxable amount my house has grown in value) indefinitely. As long as I own the house I never have to pay on it’s increase in value.
So, in 20 years here is the picture of how my retirement plan falls together. While living in the rental unit my tenants have now paid off my entire mortgage. So after income tax, insurance and repairs, there is not much left for myself to live on without the earnings from my Investments.
Over the years as living expenses increase, I plan on keeping up by making the rental price adjustments necessary. My real estate investments are relatively secure however, my would be RRSP’s don't carry that same sense of security. One can hope that at retirement they would be there when I need them but we all well know that bills do not get paid by hopes or maybe's.
When I was given a choice a few years back, I chose something not so easily evaporated with market volatility and haven't looked back since.
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