Investing for the long-term can deliver high rewards, but choosing the wrong fund can have financial implications. 

Choice is a good thing, but at times it can be fraught with difficulty. Take investing – in the UK alone, there are around 4,000 funds to choose from. Each fund operates in distinct ways, including adopting different levels of risk. Some will offer good value for money, but others might leave you paying high charges that subsequently impact on your returns.  

In February 2023, Interactive Investor unveiled a survey of 1,000 UK adults with money invested outside a pension. Asked the most important factor when deciding whether to invest in a particular fund, 52% said fair costs/charges/fees is the top criteria. 39% cited the reputation of the fund provider as a crucial consideration, with 36% viewing the strength of the financial provider as a significant component of judging where to invest.  

Typically, you pay a fee to invest in a fund. The provider issues this charge to help cover the costs of running a fund, including the marketing and distribution of it to other investors. In most cases, the charge is worked out as a percentage of your investment (for example 0.5% of what you’ve invested) and is deducted on a monthly or annual basis. This can reduce the potential growth of your investment.  

What difference can a higher charge make?  

Which? has produced some interesting research on this, based on a £1,000 investment, and comparing a fictional fund costing 0.1% with one that costs 1.0%. The difference in return was notable, based on a scenario of the investment growing 5% over a year. For the fund with a 0.1% charge, the £1,000 investment would be worth £1,603. On the 1% charge fund example, the £1,000 only grew to £1,473 – a difference of £130 (or 8% less of a return).  

Imagine if you had £50,000 or £100,000 invested? The impact of higher charges would be even more considerable – and there is no guarantee a more expensive fund would perform better than a cheaper one.  

A February 2023 report from Bestinvest found that £19.1 billion of UK investors’ money is sat in underperforming funds – a 78.5% rise from August 2022. That’s a lot of money that isn’t working hard enough for people’s future, whilst probably attracting charges that are further reducing their value.  

Choosing with confidence  

Given investing is a long-term commitment, picking the wrong fund can have costly implications. That’s why using the services of a financial adviser is strongly recommended.  

If you have investments that you’ve not reviewed for a while, an adviser can assess their performance and prospects – including whether the charges you’re paying are offering true value for money. This isn’t always easy to do on your own. For example, it might appear your fund has performed well – but when benchmarked against other, comparable funds, you might have missed out on the level of returns you could have reasonably expected.  

If your adviser believes your money could be working more effectively, they can research the market to find alternative options to consider.  

Ultimately the benefit of speaking to an adviser is to make sure your circumstances and future needs are considered, including your personal feelings to risk and reward. With a clear picture of your situation, an adviser can help you to build an investment strategy that’s right for you so you can feel more confident you’re on track to achieve your goals – and are getting greater value for money. 

For more information on investments, please contact Gail Green.