There are a number of ‘drags’ on investments and each of them needs due consideration because they will tend to reduce the value of your returns.
To a large extent none of them is entirely avoidable so it is better to try to manage rather than ignore them.
All investment products have management charges applied. Some have initial charges applied to them.
Imagine you want to invest £10,000 in an investment product that has an initial charge of 3%. This means that of your £10,000 investment £9,700 is actually invested for your benefit and you have paid £300 in order to invest.
The investment may also have an annual or fund management charge. This is also usually expressed as a percentage of the value of your investment.
Imagine that your £10,000 after charges has grown to a value of £11,000 and the annual management charge is 1.25% it means you would have paid about £137.50 in further charges.
Charges are important but what is most important is that you know these charges are applied and at you can quantify them. Investment performance should always be measured net of charges.
Inflation erodes the value of money over time.
If I keep £100 in a tin under my bed and the annual rate of inflation is 2.7% then in one years time the purchasing power of my money in the tin will only be £97.30.
I will still have £100 in notes but I won’t be able to buy as many goods and services. Over long periods of time inflation erodes the value of our investments.
Taxation is also something that erodes.
None of us particularly likes to pay tax but it does apply to many investment decisions that we make. Some investment products are more tax benign than others, pensions and ISAs spring to mind.
But the adage “don’t let the taxation tail wag the investment dog” makes real sense.
Our free workshop “How on earth should I invest my money?” on 23rd November 9.30am to 10.30am at the Cranleigh Arts Centre will go into much more detail.
Book your ticket now on www.icl-ifa.co.uk/events or call us on 01483 274566.
