The Cost of Investing
What do investment costs do over decades?
In brief
Costs are one of the few things in investing you control. Small yearly percentages compound against you because they apply to a growing balance every year.
Key ideas
Add up every layer
Fund, platform, adviser and trading costs together decide what you pay.
Make an insight card →Cost is certain, returns are not
You cannot know next year’s return; you can know next year’s charges.
Make an insight card →Pay for value
If you pay more, ask exactly what you get for it, and whether it has been proven.
Make an insight card →Try it
The cost of investing
Fees look small because they are quoted as a percentage. Over decades they are paid every year, on a growing balance, and they compound against you.
Open the full page: formula, variables, worked example and cautions →
Red flag
Charges described only in fractions of a percent, with no pound or dollar figure over twenty years.
Ask before you sign
- What are all the yearly costs, and what would they total on my money over 20 years?
- Are there entry or exit charges?
Do this week
Run the cost-of-investing tool with your actual figures.
Try it · 10–45 minutes
Add up all the yearly costs on your investments and pension.
Connected ideas
Where else this shows up
Pause and reflect
Private to this device. Nothing is sent anywhere.
Words worth knowing
- Fee
- A charge for a service. In finance, fees are often small in percentage terms but large over time.
- ETF (exchange-traded fund)
- A fund that holds many investments and trades on an exchange like a share. Many track an index at low cost.
- Fund
- A pooled investment in which many people’s money is invested together by a manager.
- Compounding
- Earning (or paying) interest on interest. Growth builds on earlier growth, which is why time is so powerful for savers and so costly for borrowers.
Companion notes written for this website, based on the topics of Chapter 21. They explain ideas and do not reproduce the book. General information, not personal advice.