The Return You Never See Leave
Peter McGahan
Monday 6th April, 2026.
IN my series on investments, I want to now cover ‘costs’.
I’ve watched people negotiate harder over a used car mat than they do over the charges inside a pension (or investment). It would be funny if it were not so expensive. In investment terms, unnecessary costs are like turning the heating up with broken windows.
Most people chase return first and cost second. In the real world, the two are welded. A return is only useful if you keep it. On a £100,000 investment growing at seven per cent a year for 30 years, the pot becomes about £761,226 before charges. Take one per cent a year away and the ending value falls to about £574,349. That is roughly £186,876 gone. Not in one dramatic crash. Quietly. Silently. Repeatedly. Annoyingly. Even moving from a 0.5 per cent annual cost to one per cent costs about another £87,087 over the same period. That is why one per cent is never “just” one per cent.
Investors often do not see the full drag. The headline fund cost may only be part of the bill. You can then have platform charges, adviser charges and transaction costs working away in the background. The Financial Conduct Authority (FCA) has said consumer understanding of charges has been poor for years and has also had to intervene on how firms explain costs and charges so people can make better informed decisions.
That does not mean the cheapest option is always best. Cheap rubbish is still rubbish. But paying more only makes sense when there is real value on the other side of the bar! If an active fund costs more than a passive alternative, it needs to justify that, not in a glossy brochure or a lunch presentation. This is where research matters. Not lazy research based on a brand name, a star rating or last year’s winner list. Real research. What is the fund actually doing? What is the benchmark? How much risk is being taken? Is the manager genuinely different from the index, or just hugging it while charging active fees? Can the process explain the performance, or was it simply luck dressed up as skill? That is where deep quantitative and qualitative research matters. And that, is a rarity.
That question matters because paying more has not, on average, guaranteed a better outcome. Research has repeatedly found active funds tend to have higher costs and, in net terms, weaker results than passive peers in key equity categories. In a 2025 report, the top quartile of active equity funds still underperformed the top quartile of passive peers over both one-year and 10-year horizons. S&P’s SPIVA
scorecards tell a similar story from another angle – 65 per cent of active large-cap US equity funds underperformed the S&P 500 in 2024, and underperformance generally worsened as the time horizon lengthened.
That is why unnecessary cost is so toxic. It is the one handicap you volunteer for. Market falls will happen. Economies wobble. Politics makes a mess of things with admirable consistency. But overpaying for something which is merely average is avoidable. It is not that the choice is binary ie passive v active because that is misleading and comparing two different modes of transport. I will cover that argument later in the series.
The behavioural trap is convenience. People set up a pension, tuck the paperwork into a cupboard, and assume the big logo on the letterhead must mean someone, somewhere, is guarding their future like a hawk. Often, they are not. The FCA found around half of retail investors surveyed were not even aware they were paying fund charges, which tells you all you need to know about how quietly this money can leak away.
So, what should you do? Start with one blunt question - what is my total cost in pounds and percentage terms each year? Then ask the harder one - what am I getting for it? If the answer is vague, jargon-filled, or built around past performance alone, keep digging. If a fund is dearer, it needs a clear, repeatable case for earning its keep. Researching the better long-term performers, and whether that performance came from skill rather than fashion, gives you a far better chance of stronger net returns than simply buying what is convenient.
Return matters.
But the return you keep matters more.
We are writing a guide to investments, if you would like a complimentary copy, please email info@wwfp.net and it will be sent to you when it is ready.
Peter McGahan is the Chief Executive Officer of Independent Financial Adviser firm, Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
