Many people mistakenly think that improved investment performance only comes from clever investment managers choosing the right assets to invest in – they have the inside track knowing when and where to invest.
This is very rarely the case. In fact this type of investing, which is known as ‘active investing’, is often out performed by ‘passive investing’ which essentially tracks the overall market.
Most better performing portfolios have low fees
Active investing comes with higher charges and fees (than passive investing) which can be a significant drag on performance. Why is this? It simply comes down to less of your money and dividends from shares being reinvested – and over time this has a huge impact on cumulative returns.
Taking the example of a £100,000 pension. An annual fee of 3% means a charge of £3,000 – over 10 years that’s £30,000! However, importantly that means that money is not being re-invested for you – so your pension pot grows at a slower rate, meaning less money to live on in retirement.
Fees are the best predictor of returns
Indeed research by Morning Star in 2016 showed that the lowest fund costs were most likely to succeed with better outcomes for investors and funds with high costs tended to take greater risk in order to produce a competitive yield.
In addition, ‘active investing’ often tries to time the market and is less diversified which in the long term is a more risky approach and can diminish returns. Passive investing tracks the market and has proven over time to be the most effective way of growing wealth.
Brite have a clarity of purpose, focusing on long term pension performance by providing low fees and tracking the market. Whereas some overseas pension providers are more concerned with how much commission they can earn.
You can see the performance of our pension portfolios on the homepage of our website. If you’d like to discuss the performance of your UK pension and your current charges please contact us and one of our advisors will get in touch to help you.