How Much Can Investment Fees Cost Over Time?

Why one percentage point is not small

Investment costs are usually quoted as annual percentages because that makes products comparable. The cash effect, however, grows with the portfolio. A 1% charge on £10,000 is £100 in the first year; on £500,000 it is £5,000. The balance removed also cannot compound in later years.

A 25-year illustration

Consider £100,000 growing at 7% before fees, with no further contributions. With annual costs of 0.25%, the simplified net return is 6.75% and the projected balance after 25 years is about £538,045. With costs of 1.25%, the simplified net return is 5.75% and the balance is about £419,573. The projected difference is roughly £118,472.

This isolates fees for illustration. Real products can have platform charges, fund costs, advice fees, trading costs and fixed charges, and returns vary from year to year.

Compare like with like

A cheaper investment is not automatically better. Compare the service, asset exposure, diversification, risk, tax wrapper and any advice received. But require a clear reason for every additional layer of cost, because the hurdle compounds year after year.

Numbers worth collecting

• Fund ongoing charge or expense ratio.
• Platform or account fee, including tiered and fixed elements.
• Advice charge, if any.
• Trading, foreign-exchange and withdrawal costs.
• Performance fees and the conditions that trigger them.

Run the calculator using the all-in annual percentage where possible. If a provider charges a fixed amount, convert it cautiously or model it separately because its percentage effect falls as the portfolio grows.

Keep inflation separate from fees. Fees reduce the portfolio balance; inflation reduces the purchasing power of whatever remains. A plan can therefore show positive nominal growth while delivering much less real spending power. Testing both effects gives a more honest long-term comparison.

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