When people talk about compound growth, they often focus on the return: 4%, 6% or 8% a year. But the rate you keep matters more than the rate you see in a headline. Investment platform fees, fund charges and transaction costs can all reduce the amount left to compound.
Why a 1% difference matters
Consider a purely hypothetical £10,000 invested for 30 years, with no further deposits, tax or inflation adjustment. If it grows by 6% a year after all costs, the mathematical future value is about £57,435. At 5% after costs, it is about £43,219. That's a difference of roughly £14,216.
This does not mean a particular fund will deliver either return. It illustrates how a one-percentage-point difference in net annual growth compounds over time. Real returns vary from year to year and can be negative.
What costs should you look for?
- Fund charges: Ongoing costs of running an investment fund.
- Platform or account fees: Charges for holding investments with a provider.
- Trading costs: Charges or spreads when buying and selling investments.
- Other costs: Advice fees, currency conversion and taxes may also apply.
Charges can be structured as percentages, fixed amounts or both. A fixed fee can be particularly significant on a small portfolio. Check the provider's current disclosures for the actual total.
How to use a growth calculator responsibly
If your expected return is before fees, consider using a lower illustrative rate to represent an after-fee scenario. Then test a pessimistic, middle and optimistic outcome. A single smooth annual return hides volatility, sequence risk and the possibility of loss.
Don't forget inflation
£50,000 in 30 years will not necessarily buy what £50,000 buys today. A nominal growth projection shows a future cash amount; an inflation-adjusted projection expresses future purchasing power. Keep those two concepts separate when interpreting a long-term result.
Bottom line: Fees are one of the few parts of an investment outcome you can often observe in advance. Lower fees do not guarantee better performance, and this article is general education, not an investment recommendation.
Explore the figures using your own assumptions.
Open the investment growth calculator →Life Figured provides general educational information and illustrative calculators, not personalised financial, tax or investment advice. Figures and assumptions may not reflect your circumstances.
