The Financial Conduct Authority (FCA) has now warned too many savers are losing out by not investing.
Last week the watchdog said too many nest eggs were being kept in ordinary cash accounts paying well below the rate of inflation.
Money Mail is running a series of articles to help savers beat inflation and rock-bottom interest rates through investing.Â
Today we look at how charges levied by investment platforms can eat away at a portfolio if you aren’t careful.
It comes after the FCA said it did not make sense for many savers to hold their money in cash savings accounts.Â
Its research found that 37 per cent of savers with more than Â£10,000 were not investing, and another 18 per cent were holding 75 per cent of their money in ordinary savings accounts.
The watchdog also said in its report that the wealthy were enjoying the benefits of investing, while middle-income households missed out.Â
It said more people could benefit from investing if they took financial advice, but that the wealthy were much more likely to do so, with 38 per cent of savers with more than Â£250,000 seeking advice, compared with 17 per cent of those with more than Â£10,000.
The report said: ‘These consumers are missing out on the opportunity of potentially higher returns. We view this as a harm to consumers as, depending on individual circumstances, holding money in cash will see its value eroded by inflation and will miss the historically higher returns available from investing.’
Scared to go it alone? Join the clubÂ
By SAMANTHA PARTINGTON
Just like with a book club, the 13 members of Roger Taylor’s social group meet regularly, have a natter and share ideas. But rather than discussing Jane Austen, Roger and his friends are talking stocks and shares.
His Monny & Cher group in Sheffield is one of hundreds of investment clubs in the UK. Some are simply a handful of friends who discuss what moves they are making and how it is going.Â
But there are also more formal arrangements – like retired teacher Roger’s club – which allow members to pool money, vote how it is invested, and share the winnings (and losses).
Share Centre, one of the biggest providers of investment club accounts, has more than 1,400 currently active.
Interactive Investor, which bought Share Centre in July, has around 500 member accounts.
Monny & Cher, whose newest member is Roger’s daughter Caroline, 41, was formed in 2001. They like to buy shares in companies and they buy into funds with exposure to international firms they favour.
Choosing ethical firms is important to the club and they love supporting local companies.Â
They look for companies with a strong track record that are going through a ‘temporary glitch’ but are likely to do well again in the future. The decision to buy is put to the group and a majority vote wins.
Roger, 73, who is married to Jenny, 67, says: ‘We used to have shares in William Hill and one member raised a discussion about whether we should be supporting gambling, and we decided we shouldn’t.’
Their biggest success story to date is Sheffield-based company ITM Power. Roger says: ‘We spent around Â£800 buying the shares and they are now worth more than Â£7,000.’Â
The club’s biggest disappointment was a Â£2,000 loss after investing in Sirius Minerals, a potash mine in North Yorkshire which ran out of money and was bought out this year.Â
They paid 20p a share and sold for 5.5p. Roger says: ‘If you nominate a turkey you expect to take some flak, but in nearly 20 years we have never had any animosity.’
Yet savers investing for the first time need to pay close attention to the fees charged by investment platforms such as AJ Bell or Hargreaves Lansdown.Â
They make their money by charging you to invest. Although these fees are (usually) small, they will affect your overall portfolio and, ultimately, your returns.
Justin Modray, of Candid Financial Advice, says: ‘While investment platforms provide a similar service, charges can vary widely.Â
It’s well worth shopping around to find the best deal for you, as choosing an expensive option could end up costing hundreds or even thousands of pounds extra over time.’
Investors using platforms can expect to pay an annual management fee, as well as costs for individual trades, and perhaps exit fees if they move to another provider.
As with a mobile contract, the ‘best’ deal for you will likely depend on your circumstances.Â
For example, let’s assume you open a Youinvest account with AJ Bell and deposit Â£10,000. You then split the money evenly across five investment funds.Â
This will mean paying five trading fees: a total of Â£7.50 in this case. Although those fees are one-off, AJ Bell will charge 0.25 per cent of your overall portfolio each year (capped at Â£3.50 per month).
Of course, this should be only a small share of your gains. If we assume those funds grow by 3 per cent in the first year, your portfolio will have risen by Â£300.Â
That makes 0.25 per cent of your total portfolio around Â£26 – less than 10 per cent of your gains. The charge doesn’t change based on how your funds perform.