Hence, when we talk about inertia and its costs, we are not necessarily advocating wholesale changes in portfolio positioning, rather a reassessment of the ‘controllables’.
For example, holding your money in a savings account may alleviate worries about taking action, but your capital may not be as safe as it seems. Between the end of 2007 and 2017, if you had left £100,000 languishing in a bank account its actual purchasing power – after retail price inflation – would have slumped to £84,025.1
While investing money over the long term is proven to be far better than saving it, we should also be watchful of how we invest. If you invest £250,000 – in a pension, for instance – from age 45 to 65 in a balanced portfolio, with a typical wealth manager your pot could give you 24 years of an income of £35,000 per annum.2
Yet, if you choose to invest with a modern wealth manager like Netwealth - see our examples in this article - an identical investment could give you 40 years of the same income. The difference in both providers is purely due to the effect of fees, or lack of them: 1.8% a year for a typical wealth manager versus less than 0.8% a year for Netwealth. Please see our differing fee rates, which depend on the size of the total invested amount here.
It quickly adds up.
What we can do about inertia
It is safer to employ logic rather than emotion when it comes to evaluating the prospects for your wealth. So if you want to see how much inertia could cost you, it is worth doing your sums. This handy cost calculator will help.
Examine how much you could be losing if you are paying high, or even industry-standard fees, to a typical wealth manager. Or calculate how much your capital is being depleted through the effects of inflation if it remains in a savings account.
You may then take motivation from what Albert Einstein’s had to say about inertia: “Nothing happens until something moves”.
Is it time to move your money for the better?
Please remember that when investing your capital is at risk.
*'Status quo bias in decision making' by William Samuelson and Richard Zeckhauser https://sites.hks.harvard.edu/fs/rzeckhau/SQBDM.pdf
1 Return calculated as the total return on the UK 1m LIBOR Cash Index, deflated by RPI, for UK Cash.
2 Average wealth manager fees are 1.8% (source: Numis Securities research) and 0.8% for a modern wealth manager (source: Netwealth Investments). Based on a stochastic model with an assumed average return of 5.3% gross per annum for a balanced portfolio of equities and bonds. Expected duration of the pension pot is based on the median outcome across 10,000 scenarios. Past performance is no guarantee of future performance.