June 27, 2025
Article
When it comes to investing your hard-earned money, the importance of minimising costs and charges cannot be overstated. Even seemingly small differences in management fees can lead to significant long-term savings and improved outcomes for your financial goals. This article explores why keeping costs low matters, illustrates the impact of charges on a £100,000 investment over 10 years, and demonstrates how a solid financial plan focused on controlling the controllables can pave the way to success.
Investment charges, such as fund management fees, advisory costs, and platform charges, directly reduce the returns on your portfolio. While these fees may seem negligible at first glance, their cumulative impact over time can make a substantial difference to your final investment value.
Let’s take an example: a £100,000 investment for 10 years at an annual charge of 1.4% compared with 2.0%. Saving just 0.6% on charges may not seem groundbreaking, but the maths tells a different story. Over time, the benefits of lower costs compound, contributing to significantly higher portfolio growth.
Let’s break it down with numbers. Assuming a consistent annual return of 5% before charges:
- At a 2.0% annual charge: After 10 years, your investment grows to approximately £134,391.
- At a 1.4% annual charge: After 10 years, your investment grows to approximately £142,428.
The difference? A remarkable £8,037 saved simply by opting for lower-cost investments. This sum could be the foundation for further investments, holidays, or even a safety net for your family.
The value of your investments can go down as well as up, so you could get back less than you invested
Over a 20-year horizon, the disparity becomes even more pronounced. The portfolio with 1.4% charges grows to £198,374, while the one with 2% charges reaches just £180,611. That’s a gap of £17,763 – money that could have been reinvested or spent elsewhere rather than lost to high charges. The disparity grows even larger over longer time horizons. Charges eat into your returns in two ways: directly, through the fees themselves, and indirectly, by reducing the amount available to compound. This means that over decades, the cost of high fees can snowball into tens of thousands of pounds – or more.
Why does low-cost investing matter? It empowers individuals to take control of the variables within their financial reach. While market performance cannot be controlled, choosing investments with lower fees is entirely within your grasp. By reducing charges, you retain a greater portion of your returns, allowing your money to work harder for you.
Beyond reducing costs, working with a Financial Planner to create a solid financial plan is essential for ensuring longterm success. This includes:
- Setting clear financial goals: Understand what you want to achieve, whether it’s saving for retirement, a major purchase, or building wealth.
- Diversifying your portfolio: Spread your investments across different asset classes to manage risk effectively.
- Regularly reviewing your investments: Stay informed and make adjustments when necessary to align with your objectives.
Low-cost investing coupled with a well-thought-out financial plan can lead to good outcomes over the long-term. By prioritising what you can control like fees and charges, you position yourself for steady portfolio growth and financial stability. Remember, the decisions you make today will shape your financial future. Control the controllables, and let your investments flourish.
The article above is written for information only and does not constitute advice, with all investments, the values can go down as well as up, so you could get back less than you invested.