We invest money with the aim of achieving a return in excess of cash, and this should be as simple, painless and low cost as possible.
However, there is an obstacle – and it’s called the Financial Services Industry. They like to make things complicated for investors with a constant flow of exciting and shiny new funds that it can sell to unwary investors, who get sucked in!
I’d like you to imagine a great big room. At one end of the room is you (and many other investors like you). You’ll all be wanting to receive an investment return on your money; some will require a low return and some will require a higher return. This will very much depend on where they are now and where they are trying to get to on their lifestyle financial planning journey. Unfortunately, and sadly, this is a step that most investors, and those trusted to provide investment advice, fail to take.
So, we are back in this big room and you are at one end and far across the other side of the room loom the financial markets. But that’s ok, because these markets over time will deliver a return. Some markets will offer a low return and some a higher return. Because risk and return are related, over longer timescales, the riskier assets tend to perform better than the lower risk assets. Be aware, though, that the journey is likely to be a lot more turbulent with the risky investments because of the ups and downs and unpredictability of the stock market.
Standing at one end of the room is you, wanting a decent return, and the investment markets at the other end of the room delivering that return to you. Simple. Sounds straightforward enough doesn’t it? So, where is ‘the GOO’ in all this?
The trouble with this scenario is, that standing slap, bang in the middle of the room, is a voluminous great big pile of ‘GOO’ and that ‘GOO’ is the investment industry; sucking considerable charges out of your money with the likelihood being that the return you require from the markets is rarely, if ever, achieved.
All charges made by the investment industry are being taken straight out of your money – dealing charges, annual management charges, fund charges the list goes on and on. To make things worse, you probably aren’t even aware that these charges exist. And even worse still, if they do a bad job and your money goes down they still take their charges, leaving you with even less!
Depending on the type of investment vehicle and funds you hold, you could be paying anything from 1.5% to 3% per annum to ‘the GOO’ (although, good investing should not cost more than 0.5% to 0.75% a year – which we should see reduce in the future)!
But all is not lost, there are ways of eradicating ‘the GOO’ which can have a dramatic and positive effect on saving significant sums of money.
The first step is align your investments with what you want your money to do for you in the future and don’t take any unnecessary risk.
The second step is to put your money into a mix of savvy investment building blocks that have a good chance of getting you there and use products that allow as much of the market returns you make to go directly into your pocket – and not to ‘the GOO’.
Avoiding tactical trading, airing caution and sticking with the right mix of investments doesn’t sound exciting and it isn’t; but your money is precious, so investing it should be simple, painless and low cost – and as low risk – as possible.
Don’t listen to industry noise and hype that may make you think otherwise.