Tuesday, October 30, 2007

An old saying from the 1800's California gold rush goes:

the best way to make money is to be the one selling shovels

I read this article yesterday on the Globe and Mail - Buy the fund, or buy the company?: Owning mutual funds can be a smart investment, but there's something to be said for owning the fund company's stock.

I'm sure I've read similar articles before so it’s not a brand new concept. However, I think it's something important for me to remember next time I'm paying 2% management fee for a mutual fund with an average of 9% annual return.

The Statistics
Over a 10 year period:

  • S&P/TSX composite index average 9.1% annual return

  • Domestic equity funds: 7.9%

  • Top three Canadian fund companies IGM Financial Inc., Mackenzie Financial Corp, and AGF Management Inc: 10.7%, 12.6%, 21.2% respectively
Also, owning the fund company stock means paying less in fees compared to owning their mutual funds.

For the complete article follow the link above. Along those same lines: What about buying banks? They are making large profits and we are always paying high fees, which only get higher as time goes on. And oil companies? How about leveraging those high prices we pay for our gas by buying oil company stocks?


Anonymous said...

I think banks can also be good. In fact, I keep telling myself that once I get over whatever is stopping me from buying stocks, I'm going to start with RBC.