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Calculate fee : Is 1% a lot or a little?

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Depending on what you ask, and who and why, you will get a different answers to the question of "is 1% a lot or a little?".

"1% of what?" may be the most suitable reply, but many answer "a little" without hesitation. 1% is often not enough to get us to change our behaviour: we are unlikely to buy something different- whether it be a car, some clothes or a meal in a restaurant - if it cost 1% more or less.

It may not be so simple when it comes to investments and the supposedly small charges. When it comes to fund charges, both the rate and the frequency should be seen in tandem. For example, 1% a year is less than 0.1% a month! The effect of compounding can see a seemingly small and insignificant annual charge of 1% compound into something material. For someone who is investing a single premium with no intention of accessing their funds for a long period - say a person saving for retirement - an annual charge of 1% a year may turn out to be a meaningful amount: charging 1% a year for 20 years has the same effect as charging just over 18% up front, and put another way, the resulting fund would be 22.2% higher if the seemingly small 1% charge did not exist. Over time, the 1% adds up!

The problem can actually be even worse. Sometimes there are a few parties who take a charge, and while each may seem to be small, in aggregate they can add up. It is common to pay an administration fee, a fund management fee and a fee for advice. In some cases there can be an additional charge if performance is good - a strategy loved by some equity and hedge funds. Layered fees can exacerbate the problem further, and charges for things like 'fund of funds' can easily take an individual's charges up to a few percent a year.

In isolation, each of the fees and charges may seem innocuous, but in combination and over time they can mount up. Choosing funds and investment vehicles that have low charges can make a significant difference to your savings and retirement income.

If you want to find out how much the charges are on your fund or investment - and how much bigger it would be without charges, try the investment fee calculator provided by GetGuidance.com.  You may be surprised, and you may reconsider your current investment portfolio and look to move to options with lower charges.

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