http://sensibleinvesting.tv -- the independent voice of passive investing In the first video blog from Sensibleinvesting.tv, Robin Powell uses research from financial author Tim Hale to show how investors in actively managed funds could lose almost one third of their return to fees and charges over a 30 year period. £100,000 invested passively at 5% annual return, for example, could net you £150,000 more at the end of 30 years than if it had been entrusted to actively managed funds. Typically, a fund's TER is around 0.9%. Actually, this excludes approximately 0.5% trail commission passed to commission-based advisers every year and 0.3% paid to the fund platforms. But let's go with figure of 0.9% for now. As well as TER, you also need to factor in trading or turnover costs... thta's things like stamp duty. commission, bid offer spread and price impact. Tim Hale estimates those costs to be, on average, around one per cent a year. So when you add the average TER to the average trading costs, that makes a total figure of around 1.9 per cent for the average actively managed fund. By way of contrast, the charges on a typical index fund - i.e. one that tracks every stock in a particular index, are just 0.3%. That's a difference of 1.6%. Now some people might say that 1.6% difference is marginal. But when you look at the figures in more detail, you'll see that, over time, that supposedly small figure make a huge difference. Let me show you. Suppose you have £100, 000 to invest, and you're in it for the long term - let's say 30 years. You can either invest it in Fund A, a typical actively managed fund, or in Fund B, a low-cost index fund. Now, as I've already explained, the average cost of investing in an active fund is 1.9%. Let's assume an annual return of five per cent. In 30 years' time, the fund is worth £250, 000, which doesn't sound too bad. However, if you'd invested in Fund B - the low-cost index fund - and again the average annual growth rate was five per cent, you would now be sitting on almost £400 000. So the difference in choosing a low-cost as opposed to a high cost fund, is around £150 000. That's no small sum... It's money you should be able to spend on enjoying your retirment. Anyone saving for their retirement should be under no illusion... Small numbers can make a big difference when it comes to investing. That's why this whole debate about fund charges is such a critical one for investors, and why we at SensibleInvesting.tv will be monitoring it very closely. Follow us on Facebook and on Twitter for the latest developments. For more videos like this one, visit http://sensibleinvesting.tv
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Duration: 4m 19s
Rating: 8