There are a few reasons why an investment strategy is more important than fees:
- Investment returns are the most important factor in determining the success of an investment. If you have a solid investment strategy that generates good returns, then the impact of fees on your overall portfolio will be less significant.
- Fees can vary widely, and it’s important to consider the value that you are getting for the fees that you are paying. For example, if you are paying high fees for an actively managed fund that underperforms a low-cost index fund, then you are not getting good value for your money.
- It’s important to have a long-term perspective when it comes to investing. Over time, small differences in fees can add up, but if you have a solid investment strategy that generates good returns, then the impact of fees will be less significant in the long run.
In short, while fees are an important factor to consider when investing, they should not be the primary focus. Instead, focus on developing a sound investment strategy that is tailored to your financial goals and risk tolerance.
Your investment strategy is more important than fees because the fees you pay can have a relatively small impact on your overall investment returns. However, the investment strategy you choose can have a significant impact on your returns.
For example, if you choose an investment strategy that is well-suited to your financial goals and risk tolerance, and you stick with it over the long term, you are more likely to achieve your financial goals. On the other hand, if you choose a poor investment strategy or you frequently switch between different strategies, you may not see the returns you were hoping for.
That being said, fees should not be ignored completely. High fees can eat into your returns, especially over the long term. It’s important to find a balance between investing in low-fee options and choosing an investment strategy that is right for you.
Let’s illustrate this with a simple example.
Investment A is a low-cost index-tracker fund invested in a mixture of shares, bonds and property with an annual management fee of 0.5%. It has averaged a return of 5% a year net of charges for the last 10 years. Its volatility has been low.
Investment B is an actively managed fund invested in global shares with an annual management charge of 1.5%. It has averaged a return of 15% a year net of charges for the last 10 years. Its volatility has been high.
Which investment would you rather have?
Always remember that it is the return net of charges that is important not the charges per se. In general, you get what you pay for. You know it makes sense.*
The value of investments can fall as well as rise. You may not get back what you invest. The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.