Personal Finance, Personal Life

I Have NO LOVE In Bonds and Mutual Funds

investments

I HATE MUTUAL FUNDS!

I know a lot of people would hate me for saying this but I don’t care!

I just hate mutual funds because I don’t know how much I am paying for MER!

MER, Management Expense Ratio, is basically the fee that you have pay for the fund manager to “grow” your money.   All mutual funds have an MER and it is expressed as a percentage of the fund’s average net assets for that year.

So regardless if you are making money or losing money, YOU STILL HAVE TO PAY MER. What’s also funny is even financial advisors cannot answer you exactly what is MER and how much MER you have to pay (NO JOKE).

THAT’S WHY I WILL NEVER EVER BUY MUTUAL FUNDS!

I will never buy ETFs (exchange-traded funds) either just because I DON’T UNDERSTAND THEM!

I ALSO HATE BONDS!

Why?

First of all, every brokerage’s commissions are different and they can be very pricey! Second of all, you probably would get the same returns as putting your money in a GIC (I am sure a lot of people knows what GIC is, so no need to explain here).

Let’s take a look at example:

Screen Shot 2017-10-01 at 9.49.28 PM

Above is what I have generated via my CIBC Investor’s Edge account (my main online brokerage account).  As you can see, this bond is issued by Quebec Hydro with a coupon rate of 11% that is going to mature on August 15, 2020.  Coupon rate is basically the annual interest rate of the bond.  Face value, on the other hand, is the loan value of the bond.

So you think buying this bond with such a high coupon rate, you would get a high return right?

UM…..NO NO……NOT AT ALL!!!!!

Unlike GICs,  people can buy and sell bonds through online brokerages.  That is why every bond has a listed price.  In this case, the current price of this Quebec Hydro bond is $125 (per $100).   Likewise, the coupon rate is based on per $100.  Therefore, the yield of this bond is actually VERY VERY VERY low (1.81%!!! C’mon).

Furthermore, I would have to pay $6,354.84 to buy this bond today with a face value of $5,000 due to commission and fees and the accrued interest is only $73.84.  Thus, I would only get $5073.84 at maturity.

Calculating my return…

20171001_223433-1

THAT’S A 1.48% TOTAL RETURN IN 3 YEARS.

I WOULD LOSE MONEY IF I BUY THIS BOND TODAY.

I am better off investing in GICs or docking my money in a high interest saving account like the one offered by EQ Bank.

To summarize, you will never hear me saying “I have invested in this bond or that mutual fund or whatever….” in this blog.  Moreover, I love to invest in things that are EASY TO UNDERSTAND.

The only time I would consider buying bond is when interest rate gets SO high that I will anticipate the rate to decrease down the road.

Oh! I forgot to mention!

When interest rate goes DOWN, bond price goes UP and vice versa!

In the next post, I will talk about what I love to invest in (you probably figure it out already =D).

Please feel free to leave a comment whether you love me or not! Catch you on the flip side!

 

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