No matter what stage of life you’re living through, there are plenty of people and companies just waiting to part you from your money. I don’t talk much here on MeaningfulMoney about couponing, or hunting round for the best deals on insurance or utilities. That’s all important, but I’ll leave that to Martin Lewis and the SuperShoppers.
But as we’ve gone through all the sessions over the past 18 months, I’ve said repeatedly that we can throw away a huge amount of money in two main ways: costs and taxes. When it comes to costs, they are everywhere. In investment terms, you might have a fund charge, then a platform charge and possibly an advice charge on top of that. That all might add up to 2% or more of your money each year.
As an example, let’s say you have £10,000 invested. If you pay 2% in fees and get a 7% return on your money over ten years – that’s a net return after fees of 5% – you would make £6,288 on your money.
If you can shave your fees to 0.5%, then you’d make £8,771 over ten years – an extra £2,500 – without you doing anything else, just NOT paying out the fees. It’s such an obvious win, it should be foremost on our mind at all points.
Tax is another danger. Most of us all only ever save into pensions and ISAs, which are pretty tax-efficient vehicles, but tax danger is lurking if we’re not careful. If we have large amounts outside these tax wrappers we should be considering gain and loss harvesting in general investment accounts, division of assets between partners for tax-efficiency, gifting strategies – all kinds of things can make the tax situation better.
The UK tax system is complicated; one of the most complex in the world, which is one of the reasons I have a job. However, most ordinary folks won’t get anywhere near the deeper end of the pool. Make sure you’re maximising pension and ISA subscriptions and you’ll largely be fine.
Don’t throw money away on unnecessary taxation, and particularly on charges when it comes to your wealth-building, no matter time you’re at. If you’re in retirement and you’re paying too much in fees for your investment approach, that will shorten the length of time your money will last quite considerably when you apply the factor of compounding. Every penny you spend in charges is a penny that you can’t spend yourself – crucial point, and definitely worthy of a place in our list of golden rules.
Hi Pete, your podcast has been very helpful. I am in a conundrum. I have invested some money for potentially 5 years, the financial adviser has charged me 5% up front fee. and I am locked with them for 3 years.
Now I want to do a regular saving into an ISA stocks and shares for 10 years to substitute my retirement . She is offering a reduced the fees of 4%, which after listening to your post cast I have learnt about the the significant of choosing a company who charges a lower fees.
My question is could I invest with another company into a another ISA who charges a lower fees even though I have an ISA already. And how do I go about shopping another for a company with a lower fees. Please help I am a novice to all of this .