Stop overpaying to invest

It’s never a good idea to pay more than you should for a product or service. And investing is no exception. A video on the Bloomsbury Wealth YouTube Channel.


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Transcript: Robin Powell and Joachim Klement/ Liberum Capital

RP: It’s never a good idea to pay more than you should for a product or service. And investing is no exception. If you’re investing for the long term, reducing your costs to a reasonable level can account for up to one-third of your eventual wealth.

JK: One of the big mistakes that you can make is to pay too much for what you get. Paying too many fees will make your product supplier happy, will make the bank happy, but it certainly will distract or subtract from your performance in the end. And, as a result, you should try to minimize fees or reduce fees. That does not necessarily mean paying nothing at all for advice or for products, it’s just that you have to make sure you get the best bang for the buck, as the Americans would say.

RP: Investors can do themselves a huge favour at a stroke by switching from expensive, actively managed funds to low-cost, passively managed alternatives. Investing in an active fund is typically five times more expensive — and that doesn’t include the additional transaction costs you incur.

JK: So if you compare passive funds, whether we’re talking about index funds or ETFs, with actively managed funds, they tend to be massively cheaper. A typical ETF will set you back, in terms of annual fees, total expense ratios of 0.2 to 0.4 per cent, I think that’s where we are roughly at this point in time, if you go to the cheapest index funds you can get it for less than 0.1 per cent per year. A typical fee for an actively managed fund is one per cent. So, the index fund, the ETF costs you one-fifth of what the actively managed fund costs, roughly.

RP: But another big cost you need to think about is self-imposed. It’s the cost of your behaviour — buying high and selling low and letting your emotions and in-built biases get the better of you. This is where a good financial adviser can save you money.

IB: A good adviser, whether it’s a financial adviser or a trusted person in your family who has experience as an investor, can actually help you manoeuvre your way through the ups and downs of markets and literally help you stay calm. Calm you down actively, like a doctor would if you have a panic attack, or a nurse would if you have a panic attack. Similarly, if you are getting afraid about markets, that is like a panic attack, and your financial adviser is like a doctor for your wealth, or for your money.

RP: The key then is to be smart about the costs you pay to invest. Some things are worth paying for; others aren’t. It’s that simple.

Disclaimer — The information in this video does not constitute advice or a recommendation, and you should not make any investment decisions on the basis of it. If you do however require advice please do not hesitate to contact Bloomsbury Wealth.


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