{"id":6391,"date":"2018-11-16T12:55:32","date_gmt":"2018-11-16T12:55:32","guid":{"rendered":"https:\/\/www.boosst.financial\/insights\/?p=6391"},"modified":"2018-12-18T15:49:02","modified_gmt":"2018-12-18T15:49:02","slug":"the-impact-of-costs-time-compounding","status":"publish","type":"post","link":"https:\/\/www.boosst.financial\/insights\/the-impact-of-costs-time-compounding\/","title":{"rendered":"The impact of Costs, Time & Compounding"},"content":{"rendered":"

A pound of costs saved is more valuable than a pound of performance gained because you reliably get its benefits every year.<\/strong><\/span><\/p>\n

“Performance comes, performance goes. Fees never falter”<\/em><\/span><\/h3>\n

Warren Buffett, investment legend, Chairman, Berkshire Hathaway (2018 Letter to Shareholders)<\/span><\/strong><\/p>\n

It is a shame that human beings are so poorly wired to be good investors.\u00a0 We have many deep-seated biases and behaviours that, whilst once useful to survive in the wild, do us a great disservice when investing. One area of weakness is our poor grasp of the exponential impact of compounding that can work both for and against us. This is something \u00a0that we take very \u00a0seriously at boosst.<\/p>\n

Imagine three different portfolios that deliver returns of 1%, 3% and 5% per year after inflation, but before other costs, over a period of 30 years: \u00a3100,000 invested in each would result in a growth of purchasing power to around \u00a3135,000, \u00a3240,000 and \u00a3430,000 respectively.\u00a0 Seemingly small differences in the compound rates of return, turn into large differences, in terms of financial outcomes.\u00a0 That\u2019s one of the great positives of a disciplined and patient approach to investing \u2013 small returns turn into big numbers, given enough time.<\/p>\n

On the other side of the coin, costs \u2013 when compounded over time \u2013 eat away at these market returns to a far greater degree than many investors ever imagine.\u00a0 Let\u2019s compare two managers who deliver 3% gross (before fees) above inflation, where Manager A has costs of 0.25% and Manager B has costs of 1.00%.\u00a0 We plot the purchasing power impact of these different fee strategies on outcomes, across time, in the chart below.\u00a0 As you can see, costs matter a great deal; an investor in Manager B\u2019s fund is over \u00a340,000 worse off than an investor with Manager A\u2019s fund over 30 years. Put another way, you end up one third more wealthy selecting Manager A over Manager B.<\/p>\n

\"\"p.s. Did we mention that we offer our clients a range of systematic portfolio’s which have a fund cost in the region of 0.25%, which is significantly below the 1% of fund charges that we regularly see our new clients have been paying within their existing investments before meeting us. The example above is simplistic but not at all dissimilar to what we see on a regular basis.<\/strong><\/span><\/p>\n

“In investing, you get what you don\u2019t pay for”<\/em><\/span><\/h3>\n

Jack Bogle<\/strong><\/span><\/p>\n

 <\/p>\n

 <\/p>\n

Source: Albion Strategic Consulting<\/em><\/p>\n

For clarity, this article focuses on explaining the impact of Fund Costs in isolation – there will always be other costs involved when investing, such as custodian fees & the boosst ongoing charge.\u00a0This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article does not represent a recommendation of any particular security, strategy or investment product.\u00a0Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.\u00a0Past performance is not indicative of future results and no representation is made that the stated results will be replicated.<\/p>\n","protected":false},"excerpt":{"rendered":"

A pound of costs saved is more valuable than a pound of performance gained because you reliably get its benefits every year. “Performance comes, performance goes. Fees never falter” Warren…<\/p>\n","protected":false},"author":2,"featured_media":6395,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[34,32],"tags":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.boosst.financial\/insights\/wp-json\/wp\/v2\/posts\/6391"}],"collection":[{"href":"https:\/\/www.boosst.financial\/insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.boosst.financial\/insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.boosst.financial\/insights\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.boosst.financial\/insights\/wp-json\/wp\/v2\/comments?post=6391"}],"version-history":[{"count":12,"href":"https:\/\/www.boosst.financial\/insights\/wp-json\/wp\/v2\/posts\/6391\/revisions"}],"predecessor-version":[{"id":6422,"href":"https:\/\/www.boosst.financial\/insights\/wp-json\/wp\/v2\/posts\/6391\/revisions\/6422"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.boosst.financial\/insights\/wp-json\/wp\/v2\/media\/6395"}],"wp:attachment":[{"href":"https:\/\/www.boosst.financial\/insights\/wp-json\/wp\/v2\/media?parent=6391"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.boosst.financial\/insights\/wp-json\/wp\/v2\/categories?post=6391"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.boosst.financial\/insights\/wp-json\/wp\/v2\/tags?post=6391"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}