Getting started: invest for yourself, and keep more of it
It’s easy to pay 1.5% to 2% a year between fund managers, platforms and advisers without seeing what it costs. Over decades that can take a third or more of what you’d otherwise have. Investing for yourself has never been cheaper. Here’s how to start.
Why fees matter more than anything else you control
- Returns are uncertain; fees are guaranteed. No one can promise what markets will do. The charge comes out every year, whether your fund rose or fell.
- They’re taken from your whole pot, not your gains. 1.5% sounds small, but if your investments grow 6% a year and inflation is 2.5%, your real growth is about 3.5%, and 1.5% takes over 40% of it.
- They grow as you succeed. On £100,000, 1.5% is £1,500 a year. On £500,000, it’s £7,500, for the same service.
- You lose the growth on them too. On £100,000 over 30 years at 6%, a 1.5% charge takes about £93,000 in fees, and the growth those fees would have earned costs you another £115,000. You end up with £366,000 instead of £574,000.
- Paying more doesn’t buy better results. Most active funds trail a cheap tracker over ten years after costs. The evidence.
- It’s the one thing you can change today. You can’t control the market. You can choose a cheaper fund and platform this afternoon.
How to start
Follow three simple rules
Earn well, spend less than you earn, and invest the difference cheaply. Building wealth: three rules.
Know what you’re paying
Charges compound against you. A 1.5% difference can cost a third of a pot over 30 years. Fee calculator.
Decide how much to pay for management
Most active funds trail their index over ten years after costs. Trackers are a cheap default, and a few managers are worth studying. Trackers or active funds.
Use the tax wrappers
Stocks and shares ISAs and pensions (SIPPs) shelter growth and income from tax. Use them before anything else. ISAs and pensions.
Know your number
How big a pot you need, and when you could stop saving. Fees can move that date by years. Coast FIRE calculator.
See what a pension really costs you
£100 into a pension costs a basic-rate taxpayer £80 and a higher-rate taxpayer £60, and less through salary sacrifice. Try your own salary. Take-home pay calculator.
Pay less tax on the way in and out
Salary sacrifice, the £100,000 trap, every yearly allowance, and passing money on. Tax and your money.
Pick a platform that suits your size
Percentage fees suit small pots; flat fees usually win as the pot grows. Put both into the calculator. Compare a % fee with a flat fee.
Own businesses, not tickers
If you pick shares yourself, think like a part-owner: your share of each company’s profits, and what you pay for them. My portfolio.
And from the great investors
The managers on moatshark mostly charge for their skill, and a few have earned it over decades. You can learn from them for free: see what they own, what they’re buying, and how they think in their letters, books and talks. Warren Buffett’s advice for most people was a low-cost index fund; his own approach is the rest of this site.