Everywhere you look today, there are ads and social media posts talking about fees on your investments. You are losing money by paying an advisor; you could have more money if you saved on your fees; do it yourself and save so much money. This spotlight on low fees has brought forth the rise of Robo-advisors, ETFs (Exchange Traded Funds), and Fee-Only advisors/planners. Ideas of investing have shifted dramatically to focus primarily, and sometimes solely, on the fees or MER (Management Expense Ratio).

Should we be focusing so heavily on fees?

By focusing and worrying about the fees or costs associated with investments, are we losing focus on what is truly important when investing? The most important aspect of investing that tends to be forgotten about is the end goal. Your ‘why you are investing.’ The push with low fees has everyone thinking that if they just select the lowest fee option, they can reach their goal without any issues or problems. This is just not the case. There are so many other moving parts to investments that need to be considered when looking at trying to reach your end goal.

If not fees, what should I focus on first?

I believe before anyone should open an investment account, they need to know the ‘why’ and the ‘what.’ First, the ‘why.’ Why are you investing in the first place? Why are you trying to reach that goal? Why are you prioritizing that goal over others? Then there is the ‘what.’ What are you trying to achieve? What is the goal of investing? What is motivating you to invest? From my perspective, these are the first things that need to be addressed before even opening a self-directed account or talking to an advisor or planner. Don’t get me wrong; it is great that you feel it is important to invest, but without a reason, there is no meaning behind the decision. Starting to invest should not be ‘because my parents told me to’, or ‘I have a job so I should start investing.’ There needs to be an end goal to show why you wanted to start investing in the first place.

Is having my reason for investing enough?

Perhaps you have your reason for investing, such as retirement, a house purchase, or even a dream vacation. Does this mean you are ready to start investing? Not quite yet. Now you need to look at your situation and see if starting to invest right now is the best option for you. Have you considered paying off debt first or prioritizing those payments? Do you need to set up an emergency fund or determine a budget to ensure that you can afford the lifestyle you want and continue to invest? What about when you want to achieve these goals? Depending on the time horizon for these goals, you need to know how much money you need to save monthly or annually. Does this work with your current budget? Have you thought about any risks or lifestyle changes that can happen over the next few years, such as getting married, having a family, or even worse an injury?

Why are my risks important?

Your risks (tolerance, lifestyle, and financial) are more important than the fee you are paying. I see social media posts talking about investing in high-risk funds, that only speak to the high returns and low fees. Your risk for investing and your ability to emotionally handle losses to your investments must be a top factor over fees. I have seen many investors who invest in high risk on their own and when the market drops, they sell due to panic. Perhaps if they had focused more on their risk rather than returns, this may not have happened. Ultimately, your risk tolerance will dictate how much you have to save and when you can reach your goals.  Someone who can handle more risk could reach their goal sooner than someone who is risk-averse. What is important is to have an understanding of your risk tolerance to understand the percentage invested in equities versus bonds.

Now should I focus on fees?

Not yet. There still needs to be considerations of your potential tax’s your other investment accounts (pension and group RRSP). How all your goals can impact each other, your financial protection with life insurance and living benefits? Which type of account is best for you, how your investment choices correlate together, and what type of investment you should pick? All these items need to be considered and validated prior to even looking at the overall fees associated with the account.

Fees are something that need to be discussed before signing up for any investment account, but they should not be the first. Prioritizing fees over all these other items can lead to missteps and mistakes along your investment journey. Robo-advisors make it simple to open an account, but they cause you to surpass all these other criteria. A financial planner will help you focus on your reason’s whys, your risk tolerance, your when, and how they work together to reach your goals. Don’t just open an account without taking into consideration all of these other items.