When asked what he viewed as mankind's greatest invention,
Albert Einstein reputedly replied, “Compound interest is the
Eighth Wonder of the World. He who understands it, earns it;
he who doesn't, pays it.”
Compounding lays the cornerstone of good investing and can
be separated into two sub-components: performance and fees.
It’s a delicate balance. Like rearing a delicate flower, space
must be provided for investment flair and talent to bloom,
while set within a consistent and carefully controlled
environment.
Get this balance wrong and the small seedlings will do poorly;
they may even die.
Get it right and they will grow into fabulous forests and
remarkable portfolios.
1.
The power of compounding
Something we learned running hedge funds, and something we
didn’t expect at all, was how often we kept running into some of
the world’s most successful endowments, pension funds, and
sovereign wealth funds; all beating similar paths through the
financial undergrowth.
So, we thought about why this was, and gradually realised that
almost all these top performers shared four key attributes.
Our aim is to harness these same attributes and make them
available to you, the retail investor, at a price you can afford.
We often hear about wealth manager ‘mates’ entrusted to
look after people’s money and to choose suitable funds for
them. That’s a heck of a lot of trust!
Because, according to S&P Dow Jones, over the past 10
years 87% of active European equity funds
underperformed the S&P Europe 350 Index and 95% of US-
funds underperformed the S&P 500.
These results are bleak. Yet, European regulators find retail
investors still struggle to obtain basic information
regarding how much their pot has grown, their charges,
and whether their expectations have been met.
IInvest £100,000 at 5% annually, and it will grow to £265,330 in
20-years. This represents a cumulative gain of 165%.
Now deduct typical total investment fees of 2.83% per annum*
and that same £100,000 will increase to just £153,627. Your final
pot is almost half the value it would have reached in the
absence of fees.
Over an average 38-year working life, fees can reduce your final
saving’s and pension pots by a staggering two-thirds, leaving
you to live out your retirement on the remaining one third.
That kind of maths astounded even Einstein!
It is why, through innovation, investment, and operational
efficiencies, Eriswell keeps full-service wealth management
costs down to around 1.1%. This includes ongoing advice,
portfolio management, trading platform, administration, safe
custody, etc.
Our rates are over 60% below the 2.83%* per annum market
average.
2. Performance. It’s not good
enough to aim, you have to hit it
* Industry standard UK combined fees for a £100,000
investment are 2.83% per annum.
Decomposition as follows: 0.95% per annum Wealth
Management/IFA advice; 1.25% p.a. active fund management
fees (OCF + hidden transaction charges); and 0.63% per
annum additional fees, including inter alia entry/exit fees,
bid/offer spreads, and administrative charges.
Sources: FCA, ESMA, Market estimates.
How standard fees of 2.83% p.a.
destroy your savings over time
Control frameworks are your north star, a dependable point
of reference which governs the evolution of your portfolio
through time.
This star must never dim as the results are rarely good.
Control weaknesses come in many guises, but arguably the
most worrying are the persistent failures which follow an
organisation’s instinct to protect itself and its reputation
above all else.
To paraphrase Lincoln: effective control systems must be of
the individual, by the individual, and work for the individual
not their service providers.
Eriswell’s control frameworks have been designed to meet
this test.
4. Control Frameworks
3. Fees. More dangerous than any crash!
Chart 1: MARKET STANDARD FEES of 2.83%* p.a.
Chart 2: ERISWELL FEES of 1.10% p.a.
Hallmarks of a successful portfolio
T: +44 (0) 1932 240 121
E: info@eriswell.com
For general enquiries, please contact us by
email or telephone.
We look forward to speaking with you soon.
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