23 October 2010

Investment charges in the News

I have come across several news items this month which talk about investment charges. There was a rather ill-informed Panorama programme on pensions and on how much money people were supposedly losing. and there was a MoneyMail supplement "revealing" the extent of the problem.

The fact is that it is important to look at the charges on an investment or pension. Over the long term they can have a significant impact on the growth (or otherwise) of your investment. And it is the annual charges which are the most significant, even though they are likely to be smaller than any initial charge. If you invest £10,000, the difference between growth at 5% and 4% (with an extra charge for example) is approaching £1,500 over 10 years.

Nevertheless, investment companies do have a right to make a profit as well as having costs.

Investors can fall into one of two camps - either they think any charges are a bad thing, and stick to a poorly performing bank account (remind yourself who gets the profit from that!), or they ignore the charges. Neither is the best approach.

A realistic look at the numbers for two different options - invest or don't - will normally indicate what is the best option for you. The key thing is that the charges have to be clear, and while there is room for improvement that has improved a lot in recent years.

No comments:

Post a Comment

Blog Archive