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The Cost Of Doing Nothing
The Cost Of Doing Nothing The Cost Of Doing Nothing It’s a common and important query.Let’s compare: (!)Imagine if there was an investment that…. Is tax free Cannot be taken
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Why That 1% Fee Could End Up Costing Your Investing Portfolio £150k
Why That 1% Fee Could End Up Costing Your Investing Portfolio £150k
The power of compounding is wild…
Not least the massive effect it has on the size of our portfolio long term. The chart below shows the outcome of various rates of returns of an initial $10k investment at 5 year increments. The currency unit is arbitrary and could also be replaced with £s
As you can see from the chart, an account which has an initial investment of £10k and a rate of return of 10% will compound to £450k in 40 years. A 45x return on your initial capital. This is from a one off investment of £10k and no further contributions. Realistically, most people contribute continuously and not just as a one off meaning the effect would be amplified and thus even greater.
You can see that even a 1% reduction in returns (equivalent to a 1% ongoing fee) leads to a portfolio of £300k and NOT £450k. That’s a £150k opportunity cost over this time period.
Profits are the gap between the returns on our portfolio and the fees we pay. It stands to reason that the greater our returns and the more minimal our fees is the more profit we make. And hence the sooner we hit financial freedom.
10% returns per annum is not far off what is reasonably attainable in an investing account with a little education
And a the majority of portfolios can be optimized to around 0.5% fees per annum
However, a huge amount of the UK’s portfolios are not attaining this. And I feel not understanding what’s possible/where the bar can actually be set is a big part of this. The chart below shows what is at stake.
40 years may sound like a long time – however if you start working as a dentist at 25 and retire at 65 which is not outside of the ordinary… then its pretty representative of a typical career.
There’s a MASSIVE margin of return potentially on offer here… (and certainly much more than there would be purely by leaving the cash idle in a bank account)
Of course there are situations where this doesn’t apply. And also a little knowledge is needed to pull it off…
DIY investing is not for everyone – and some people prefer to have professional guidance. But understanding how much some education will benefit you and is likely to unlock that extra 2-3% in your investment portfolio is so important. The chart below shows what there is to be gained.
This can pull your financial freedom date forward by years of even decades. Food for thought.
*Not Financial Advice
Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional.
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