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Readers always have questions on a variety of topics, so let’s look at some that have been sent to my inbox.
Q – The cost of buying a mutual fund from a company is not clear. I understand the MER a fund company such as Fidelity charges, but what do the company and advisor that sells the funds charge? This piles up over a 20-year period. It costs a lot more than just buying individual stocks, would you agree? – Dallas W., Reston, Manitoba
A – The MER includes most charges from the company, such as management fees, trading costs, etc. It does not include trading commissions, which are expensed separately. These are annual charges and, yes, they can add up to a lot over time.
The advisor may be compensated in one of several ways. These include salary and commissions. Or, if you have a fee-based account, a small percentage of your total assets (typically 1%-2%) is paid annually for the advisor’s services. Ask the advisor how he or she is compensated and what the cost would be to you.
Are mutual funds more expensive than individual stocks? It depends. If you have a fee-based account with a broker, you’re paying an annual cost for it. This covers all trading activities and enables you to purchase less costly F-series funds.
If you don’t have a fee-based account and you trade a lot, commissions will add up, even if you use a discount broker. That could make the cost of investing in stocks more expensive than mutual funds, but it all depends on your level of activity. If you just buy and hold, stocks are cheaper.
You need to look closely at your investment activities and decide which approach is most cost-effective in your case. – G.P.
Q – In a recent article, there were reference to meme stocks. I don’t have a clue what that term means. What is a meme stock? – Jane R.
A – A meme stock is one that becomes popular with retail investors through social media. They become the topic of online discussion groups, who sometimes use their collective buying power to purchase shares in a company to drive up the price. The results can be astounding. On Jan. 27, 2020, shares in GameStop reached a high of US$86.88, up 134% from the day before. The company wasn’t worth anything like that, either from a financial or business perspective. Needless to say, the inflated price didn’t last long. Investors took profits and the shares plunged. By year-end, they were down to US$4.82.
We still see periodic social media activity around GameStop and other meme stocks. GME traded as high as US$49.85 in 2022. As I write, it’s at US$18.55. I don’t recommend GME or any other meme stock, but some young investors love playing them, as if they were video games. The U.S. Securities and Exchange Commission investigated but took no action, beyond issuing a report. – G.P.
Q – Harvest Healthcare Leader Income ETF has units that trade in U.S. dollars on the TSX. For tax purposes, is the income considered foreign income or Canadian? For example, can donations to registered charities in the U.S. be deducted against the income from HHL.U? – Michael K.
A – Only a small amount (9.26%) of the income from this ETF was classified as foreign income in 2022, according to the Harvest Funds website. Most of the distributions (about 94%) are treated as return of capital. So, you won’t get much help here for U.S. charitable contributions. – G.P.
If you have a money question, send it to gordonpape@hotmail.com and write Fund Library Question in the subject line. Sorry, I can’t guarantee a personal response, but I’ll answer as many questions as possible here.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website. Subscribe now and receive free copy of the special report “The Tumultuous Twenties.” Go to https://bit.ly/bwGP20s.
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Notes and Disclaimer
Content © 2023 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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