Hey guys, it's asha a lot of people, don't understand how extremely expensive some investment funds actually are and, as a result, they could be paying way way more for the privilege of investing in those funds than if they chose a different option. These investment funds are really great at marketing and obscuring how much they actually cost making it seem like they're, incredibly, cheap and millions of people buy in because of that promise. These people are also told that these funds are super safe and that your money is managed by experts who know better than you do and that's why you need to go and put your money into those funds, because then they can go and manage it for you. But let me bust a few myths.

Let me explain to you exactly how incredibly expensive these funds are, because i think you might be really surprised to find out the actual numbers. But first let me talk about the two big reasons. Why so many people are actually invested in these funds? The first reason is often down to confidence, and this is a sort of built up perception that the people managing your money are some kind of extremely smart people. They really know what they're doing they're doing the right thing for you by getting you that extra level of return on your money.

These experts are there to ensure that your money grows and performs really really well right. Well, you don't need to go any further than the standard and poors themselves. You can go and find any number of different white papers. Research buy standard posts, buy industry bodies by anybody.

You want who will show you that, depending on numbers that you want to look at somewhere around 85 to 90 percent of actually managed funds at any one point will be underperforming. The standard poor's 500 largest index, for example, all the relevant index, that that active fund is trying to beat, but the number is even more startling if you look at a further time period. So the further back you go the higher that proportion of funds that underperform gets, but don't let academics or white papers tell you you can go and literally look at this yourself go and pick your favorite investing funds. I i've noticed recently a lot of people talk about money farm because you know there's been a big marketing campaign, a lot of youtubers talking about them.

So i went and looked on their website because you know it's obviously the thing of the month and when i looked the highest portfolio, the highest risk portfolio that they have has gone up by 61.9 percent since january 2016.. That sounds really great right. Well, except in exactly the same time, frame over the same time period, the completely passive, requiring no oversight by industry experts, s p 500 index went up 106, that's a seriously big difference right and this is remember the highest performing the highest risk version of their portfolios. Now many of these investing platforms, don't actually let you do much investing.

You have a very limited choice of typically between five and seven different funds. In exchange, you have to go and pay a lot of fees. If you don't like the risk, there are some lower risk portfolios available compared to the one that i just showed you and you know, money from risk level 2, for example, delivers 2.9 per year or if you're really risk averse, you can go for level 1, which Turns 1.1 per year incredible, but here is the really big problem. Let's look at the numbers, these companies and funds charge fees for the privilege of you being able to earn less money than if you didn't use them on the surface.

These fees don't look too bad. Let's keep on the same example: money farm, for example, charges not 0.75 per year on the first 10 000 pounds invested with them and many other platforms. If you're going to look across the board, they all roughly charge the same amount. Then you have to pay the etf fees on top and then there's a little bit of natural spread.

Yes, these investors will literally invest in the same etfs that you can go and invest in yourself on other platforms without having to pay the fees. But if you look at their distributions, their highest risk portfolio has 50 percent, roughly speaking of money invested in developed equities. This is basically pretty much going to be the s p 500. But if you go and look at some of the lower esport failures, you get to pay the annual fee in order to have more than half of your money to be just kept as cash yeah, literally a pile of cash sitting there doing absolutely nothing.

That's called investing anyway. Here's the bit that i think most people don't even really think about 0.75 percent. If we stick with the example, sounds pretty decent right, it's a very low percentage and the grand scheme of things is not very bad right. It's only not it's less than one percent.

Well, look at it this way. Let's say you decide to invest in the average risk portfolio as an average customer. So, let's stick with the theme and let's go with level four with money farm out of seven slap, bang down the middle! That portfolio has returned an average of five point: seven percent per year over the last five years according to their website. And if you have a small amount of money invested with them, you're going to be paying that 0.75 in each of those years.

Now, if you do the small print the calculations they show which tell you what the average rate of return is use. A balance of 250 000 pounds which to me seems somewhat disingenuous because i'm presuming this is more than 95 99 of people who are using the platform. But let's not get into the depths of that. So instead of using 0.75 fee, they've actually used 0.55 percent fee.

In the numbers, so that means, if you take that 5.7 return figure that i just quoted - and you add the 0.75 fee for small schmuck investors like me, you're going to get an average return of 6.25 percent before the fee was taken off. I know this is an approximation. I might not be getting it quite right because of cam compounding, but just just hear me out, i'm not going to be far off. So if you had your money invested in this portfolio right now and based on this historic return, you know - or maybe you were invested in over the last few years - then you'll be paying 0.75 fee out of your 6.25 return.

That's a huge twelve percent of your total earnings. Yeah twelve percent of the amount of money you're actually earning is the amount you're going to be paying in fees suddenly doesn't quite sound as good. Does it well in a bad year, like 2020, like the one we just had, the total return on this portfolio was only 2.5. So then the fee is 30 of the amount of money you made in that entire year, but it gets even worse than that, because the one thing that we're forgetting is inflation see.

Inflation is usually, if you look at the long term about two percent per year. On average, it wasn't too far offered over the last few years on average. So that means the real rate of return on your money is not six point: two five percent. It's just four point two: five percent, because inflation makes the value of your investments lower.

Every single year, but guess what the fee is still the same and the fee then the 0.75 out of 4.25 return on average for the portfolio, because 18 of your average return every single year. So next time you look at these portfolios. Give it a little bit of thought: do you want to pay 18 of the amount of money you're actually earning over to the platform, for the privilege of being able to earn that money? Are you happy for that huge amount of money that you're paying to be able to earn less money considerably less money than if you just invested passively in something like the s p 500 index? These fees might seem really small in the way that they are marketed and presented, but do a little bit of math and suddenly they become really incredibly expensive. You can go and invest in the s p, 500 by opening an account with either free trade or and two who right now are not actually accepting new accounts.

But i think they'll change relatively soon and if you go and use my link in the description below not only will you be able to invest in the sap 500 without having to pay platform fees or transaction fees. In the case of pound-nominated etfs, you will be able to also get a free share worth up to 100 200, depending which platform it is. So that's a pretty nice bonus on top of what i really like as a platform, and i will also get a free share as well, which i'm really grateful for anyone using my link for so thank you very much in advance, but i've just made a separate Video that i published literally just before this one, but all about the best s - p, 500 etf, and why, based on price alone? So if you want to go and find out my thinking on exactly how i personally like to invest in these p500, make sure you go and check that video out, i'm going to put a link up here and i'm going to put a link after this video Finishes as well as always thank you very much for watching. I really really appreciate it and i'll see you guys later.

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