We’re going to poke a bit of fun at Royal Bank of Canada. 

There’s a great 1709 quote by Alexander Pope, from his Essay on Criticism, which goes as follows:

A little learning is a dangerous thing; 
drink deep, or taste not the Pierian spring: 
there shallow draughts intoxicate the brain, 
and drinking largely sobers us again.

The Pierian spring is a source of knowledge.  Pope suggests that if we drink a small amount from the Pierian spring, we’ll become sophomoric—potentially leading us to trouble.

RBC was hoping to take advantage of shallow draughts when they offered their own brand of low cost index funds. The only trouble for keen, would-be index investors was that the funds weren’t “low cost” at all. 

They were some of the most expensive index funds on the market.

When the funds were introduced, RBC probably hoped that inexperienced investors would sleep-walk into these expensive beauties, ensuring that the banks would make money from investors’ lack of knowledge.

Check out what $10,000 invested in each of the RBC indexes ten years ago would have turned into by December 19, 2011:


Annual   Hidden Fund Costs

Fund   values on December 19, 2011

RBC   Canadian Equity Index

0.71   percent charged annually


RBC   U.S. Equity Index

0.72   percent charged annually


RBC   International Equity Index

0.69   percent charged annually


Stacked up against RBC’s actively managed flagships: their Canadian equity fund, their U.S. equity fund and their International equity fund, The Royal Bank probably expected their indexes to dramatically lose.

But they didn’t.

Costs matter—a lot.

Even though these indexes had high internal costs (I certainly don’t recommend them) they were still significantly cheaper than RBC’s actively managed counterparts. 

Check the tale of the tape below, assuming that $10,000 was invested in each of these funds, ten years ago:


Annual   Hidden Fund Costs

Fund   values on December 19, 2011

Total   percentage of underperformance, relative to RBC’s indexed counterpart

RBC   Canadian Equity

2.05   percent annual fee


5.1 percent underperformance

RBC   U.S. Equity

2.08   percent annual fee


4.5 percent underperformance

RBC   International Equity

2.25   percent annual fee


28.9 percent underperformance


Who benefits from higher fund costs?

The financial service institutions

Who benefits from lower fund costs?


How do you give yourself the highest likelihood of long term investment success?

  1. Diversify your money across different asset classes
  2. Keep your  investment costs as low as possible

Spread the word about this series of posts among your friends and relatives.  And if you haven’t checked out my book, Millionaire Teacher, it explains this investment process.

We all deserve to drink deeply from our own Pierian Springs.