1% doesn’t sound like a lot. Who really cares about the last 1% anyway?
I think you’ll care by the end of this post.
As with most things in life, using a service costs money. Fair enough. The same is true when it comes to investing.
There are many ways for you to invest; the two main choices you have are a personal broker / wealth manager or a do-it-yourself investment platform.
Either of these options will cost you something to use their services, and often it’s in the 0.5% to 5% range of whatever it is you are investing.
What do you think the impact of an additional 1% cost to your investment is over 45 years?
Probably not enough to lose any sleep over.
Wrong. Take a look at this.
Imagine you had built up an investment portfolio with a value of £1,000,000 over 45 years by investing £100/month. If you made 1% less return each year because of the investment charges, that would have cost you almost £300,000 over the 45 years, leaving you with just over £700,000 instead of £1,000,000.
With 2% additional cost, your £1,000,000 would be reduced to almost half of that. And at 3%…well, you can see for yourself.
So, ask yourself this.
Can I really afford not to worry about the cost of my investments?
Is my adviser worth that extra 1% or even 5% that they might be charging? Am I using the best value platform available? Do managed funds that cost 2% deliver better returns than passive funds that cost just 0.05%?
I think you’ll agree that 1% now sounds like quite a lot when you look at it like this.