The cost of investing
There are a number of charges to pay when investing because there are several parties involved in helping manage your money. While these fees will eat into returns, remember that paying more for a fund with excellent returns is better than a cheap fund that offers poor returns.
So what are you paying for?
Your adviser will charge an amount for their advice; usually a fixed lump sum, or an hourly rate. This should be made clear and agreed at the outset of your sessions.
If you're going it alone, an investment platform will charge an amount for their service; usually a portion of the amount you invest, or a set fee.
Whichever route you take, there are annual charges to pay to the fund provider. This is called the Ongoing Charge Figure (OCF) and covers administration, operating costs, investment management and independent oversight. Some funds also charge a performance fee to reward the manager for superior returns or for outperforming their specified targets.
Remember that investing is not just about price. While keeping a lid on costs is important since charges will eat into returns, the emphasis should be on value for money rather than the price in isolation. Paying more for a fund with excellent returns is better than a cheap fund that offers poor returns.
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