Imagine two people riding bikes up a hill. They both have a similar physique and identical bikes. The difference is one of them is carrying extra weight while the other isn’t.
Will they both make it up the hill and, if so, which one will make the quickest progress?
Basic physics tells us that the lighter cyclist will make it up the hill quicker while the heavier cyclist will be slowed down by the extra weight.
This analogy perfectly illustrates the impact of fees on investments and that investors are often oblivious to their impact unless they compare them to a lower-cost alternative.
In the world of financial services – which includes banks in Italy, local asset managers and international advisors – there is a lack of transparency. It is quite common to see advisors deploying expensive investment strategies for clients invested into regular savings plans, insurance bonds, platforms, SIPPs and QROPS.
We have been in bull market for the longest period in history meaning that markets having been rising year on year since around 2011. This provides the perfect context for rogue advisors to get away with selling expensive investments knowing that their clients won’t realise the impact of the fees.
I have met with clients who have been concerned about the slow growth of their portfolios. Often the slow growth is enough for them to be concerned but does not cause panic. It is only when we examine the numbers in detail that they realise that their investment is a long way short of where it should be.
Markets cannot carry on rising forever and at some point there will be a major correction (we have already seen a minor one in October 2018). It will be at this point that investors see their expensive investments crashing at a faster rate than lower cost alternatives.
At Valiant Wealth we provide a range of solutions and options for investments. The important factor to consider in our advice is that we are fully independent and we do not receive any remuneration from investment managers. We have no incentive or interest in investing your money in anything other than the investment that is right for you.
We can provide clients with a discretionary fund manager (DFM), a model portfolio that is actively managed, a lower-cost passive portfolio containing ETFs or a multi-asset portfolio that combines the best of both. We will be guided by you, your goals and your risk profile but we will always aim to find the best value for money and the lowest possible fees.
We have witnessed clients with investments with annual expense ratios of more than 3% and often an entry fee or exit ‘surrender’ fee as well. We can compile portfolios that cost less than 0.5% and give you the best chance of achieving maximum long term growth.
Comparing the impact of the fees above let’s consider the following scenario:
Investment Premium: €200,000
Timeframe: 10 years
Risk Profile: Balanced
Average Growth: 6% per annum
With investment fees of 3% this investment will be worth €268,783 after 10 years and €361,222 after 20 years.
With investment fees of 0.5% this investment will be worth €341,629 after 10 years and €583,551 after 20 years.
The difference in monetary terms is astonishing. In real terms it is the difference between being able to afford to send your children to the best university or to buy your dream home to live in when you retire.
As a purpose rather than profit driven company, our business model is based on ensuring the prosperity of our clients first. As we say, “we map the path and walk the journey by your side”. We want to see you achieve your dreams and for our own business to succeed as a result of the value we add.
If you want to speak to us for a FREE consultation then we will happily take an x-ray view of your existing investments and recommend ways to save you money.
Simply fill in the form below and we’ll be in touch.
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