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How high costs are hidden by the fund management industry

The pension and fund management industry tries to get us to focus on performance – not costs – when it comes to investing.

This is pretty ironic, given that most fund managers actually under-perform [1] a simple tracker fund.

Indeed, in its first video [2] on the case for passive investing [3] in index funds, Sensible Investing quoted research that found that merely 1% of fund managers showed any evidence of skill that might be worth charging for.

In 99% of cases, there was no skill on show at all. Given this, performance is clearly a distracting sideshow.

High costs pull down the returns you see from active funds [4]. They simply enrich the industry at the expense of your pension.

Worse, most investors have no idea what they’re actually paying for, as outlined in this second video:

Gina Miller of The True and Fair Campaign [5] – which pushes for fairer, more transparent investing – estimates that there can be 11-13 layers of charges applied to your pension.

And as Nobel Prize-winning economist Eugene Fama says:

“If you’re paying management fees, the cumulative effect of that, given the way compounding works, is enormous. So active managers basically charge on average 1% in the US on management fees and you never know what their transactions costs are because that’s not a reported number but they’ve gotta be way higher than for passive managers because they’re going in and out of securities all the time.”

Instead of the red herring of chasing performance, you’re much better off drilling down the costs [6] you pay to make your investments – including the charges levied by your broker or fund platform [7].

Check out the rest of the videos in this series [8]so far.