A short while back I met a young lady who met a very genuine and sincere financial adviser. His proposition was that she should consider saving a small monthly sum into his companies investment funds. He correctly explained to the lady that his company would deduct 4.5% from every contribution she made and her understanding is that the fund would take another 1.5% per annum out of her savings.
Had the advisor been an Independent Financial Advisor instead of the restricted Financial Advisor that she was talking to she might have learned that she could save a monthly sum in passive or tracker funds at very low cost.
The Funds offered by the advisor were actively managed investments which employ a Fund Manager who has to be paid and then again the advisor needs to be paid from the huge 4.5% deduction from his client’s savings.
A passive or a Tracker Fund does not normally employ an active Fund Manager but simply uses a model to track the movements of an index like, for example, the FTSE 100 index. You can invest small monthly sums tracking all kind of indices. If you track the Financial Times Stock Exchange (FTSE) 100 index then you are following the ups and downs in the capital value and profitably of Britain’s largest 100 companies. Statistics show that passive funds outperform most actively managed funds so given the combination of possible better performance and much lower cost, as an investor you may well end up with more money in your hands then otherwise.
The problem is that most advisors can earn very little from advising you to invest say £100 per month as the amount of paperwork and the regulatory requirements needed is huge and so this is the reason why you need to learn about these things and take control and build the confidence to invest for yourself.
You certainly do not want 4.5% of your savings taken away before you even get off the ground. In practice, your funds would have to grow by at least 6% per annum for you even just to get your money back.
Using a very low cost Passive or Tracker Fund you have every chance of realising a good profit margin on your savings. Always remember that investments that might give you a good return will sometimes fall in value as well as rise.
You can hear me talking about these things on my Free Taster Videos available on this website.
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Mr and Mrs C Cambridgeshire
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