The one thing every investor can control is their costs. Most of our customer research has shown that people don’t know how much of their money they will lose because of what seemed like a small fee amount. Paying an extra 1% of fees every year will likely reduce your investment goals over 30 years by 30-40% - this is caused by compounding cost of fees.
Want to see an example?
Imagine you had a pension account with £50,000. If you reduced the fees on that pension by 1% today, say from 1.5% to 0.5%, and then that pension grew 5% per year over 30 years, you would earn an extra £71,000 in cash at the end of those 30 years. In other words, by choosing not to lower your fees in this scenario you would lose >40% of the GAINS your money should make.
As an investor, it's important to understand the impact of fees on your savings. While it may seem like a small amount, even a 1% difference in fees can have a significant impact on your long-term investment goals.
Let's take a closer look at an example to see just how much of a difference fees can make. Imagine you have a pension account with £50,000. If you were to reduce the fees on that pension by 1% today, from 1.5% to 0.5%, and then let that pension grow at a rate of 5% per year over 30 years, you would earn an extra £71,000 in cash at the end of those 30 years. That's a significant amount of money that could greatly impact your retirement plans.
To put it another way, if you choose not to lower your fees in this scenario, you would lose over 40% of the gains your money should make. That's a staggering amount that could greatly impact your financial future.
The Dramatic Impact of ‘small’ Fees on your savings | 1.50% | 0.50% | 0.0% |
The Cash Saved into your Pension | 50,000 | 50,000 | 50,000 |
Total Fees Paid by Retirement | (39,441) | (15,600) | – |
The Gains of your investments, net of fees | 99,381 | 170,995 | 194,969 |
Final Value of your investments | 149,381 | 220,995 | 244,969 |
To illustrate this point further, let's take a look at the table above. It shows the dramatic impact of fees on your savings over time. The first column represents a 1.5% fee, the second column represents a 0.5% fee, and the third column represents no fees at all. As you can see, even a small difference in fees can result in a significant difference in the amount of cash saved into your pension and the total fees paid by retirement.
In conclusion, as an investor, it's important to be aware of the fees associated with your investments and to make informed decisions about reducing those fees whenever possible. By taking control of your costs, you can greatly impact the success of your long-term investment goals.
This example doesn’t even take into account extra costs, such as trading commissions, foreign exchange and interest, or factor in any further contributions you will likely make over time.
This example is for illustrative purposes only and is not a projection of future potential returns. Actual costs you will pay at other providers may differ."