What Should You Pay to Make Money? A Grown‑up Guide to Investment Costs

There’s a brutal bit of arithmetic at the heart of investing:

Market return – costs = your return.

That’s it. Every pound of ongoing fees is a pound that can’t compound for you. Over long horizons, “small” percentages become big numbers.

Look at the image below for instance.

You would always want to know your net benefit, how quickly you make your cost back and also your overall return on your cost. That's why we created the above tool. You can see it at https://greatinvestmentsprogramme.mgx.world/

But Imagine Other People You're Paying

At a 5% gross return, paying 1% a year for 30 years leaves you with roughly 25% less than going fee-free – not because of villainy, but because of maths. Regulators and academics have been shouting this for years.

The Evidence: What the Data Says

Sharpe’s Arithmetic (Stanford University)

William Sharpe showed that, before costs, active investors collectively are the market. After costs, they lag by the amount of those costs.

SEC Warnings (Investor.gov)

The U.S. Securities and Exchange Commission illustrates the drag vividly: even a 1% annual fee erodes tens of thousands from a portfolio over 20 years. The principle is universal: compounding works for you — and for your fee-taker.

Morningstar’s Findings

Morningstar’s research consistently shows the best predictor of future fund success isn’t past performance — it’s low fees. Their 2025 updates put it simply: start with cost.

SPIVA Scorecards (S&P Global) SPIVA reports confirm that, over the long term, most active funds underperform their benchmarks after fees. The UK is no exception. If you pay high charges, demand evidence, not adjectives.

Should You Ever Pay Fees?

Yes - but only for value you can’t replicate cheaply.

Pay for process and discipline, not brochures.

If a provider offers risk control, behavioural coaching, or a repeatable process, fees may be justified. Adviser’s Alpha (Vanguard).

Vanguard’s research estimates that good advice and implementation can at times be worth up to 3% per year - not as a guaranteed bonus, but as intermittent payoffs from smarter rebalancing, tax efficiency, and stopping you from doing something daft in a panic.

Think of it as buying a shock absorber, not a magic carpet.

What’s “Reasonable”?

• In the UK, default workplace pensions are capped at 0.75% per year, with many schemes running lower.
  

• If your all-in costs on a core, diversified portfolio are north of that — without a demonstrable edge - you’re paying Bentley prices for bus-lane performance.
  

• Under the FCA’s Consumer Duty, firms must prove charges are “reasonable relative to the benefits.”
  

A Simple Framework for Pricing Anything Investment-Related

1. Calculate the drag. Convert the fee into basis points (bps) and time. A 60 bps difference (say 0.75% vs 0.15%) compounds to roughly 16% less wealth over 30 years at typical returns. If the provider can’t plausibly clear that hurdle, pass. (That’s the Sharpe arithmetic again.) (Stanford University)
   

2. Demand an evidence‑backed edge. For stock‑picking or expensive multi‑asset, ask for a repeatable process and long‑horizon benchmark comparisons net of all fees. SPIVA exists precisely because stories are cheap and basis points are not. (S&P Global)
   

3. Pay once for insight; rent implementation cheaply. Generally, prefer paying transparent, finite costs for education, tools or a robust process – then implement via low‑cost funds or brokers. Morningstar’s work is clear: cost discipline at the implementation layer is non‑negotiable. (Morningstar)
   

4. Price behaviour. If a service materially reduces the odds that you’ll sell at the bottom or chase nonsense at the top, that behavioural protection can be worth more than its sticker price – irregularly, but decisively. That’s the heart of “Adviser’s Alpha.” (ch.vanguard)
   

5. Use the Consumer Duty smell test. Would a fair‑minded regulator say the price is “reasonable relative to the benefits”? If you can’t articulate those benefits in two sentences and one number, keep your wallet shut. (FCA)

If you want to see how I apply this logic in practice, try my tool: https://greatinvestmentsprogramme.mgx.world/. It’s designed to help you focus on decision quality and cost discipline – where the real compounding happens.

⚠️ Disclaimer

Capital is at risk. Past performance is not indicative of future results. This article is for educational purposes only and does not constitute personal investment advice. Please do your own research and, if needed, consult a regulated financial adviser. Alpesh Patel OBE www.campaignforamillion.com