costs
The tyranny of compounding costs
The rule
In investing, you keep what you do not pay out. Fees grow against you every year, just as returns grow for you.
Where it flips
The cheapest choice is not always right. A slightly higher cost can be worth it, if it buys real safety or help you truly need, like health cover or a good adviser. The rule is: know exactly what you pay, and what it buys.
Bogle's big idea is this. Fees are not a small cut. They pile up year after year. A 2% yearly charge does not just cost you 2%. Over many years it can quietly take a third or more of your final savings. Every rupee of fee is a rupee that can never grow for you. This is why a cheap index fund often beats a costly active fund. And why a high-charge ULIP can turn a good return into a poor one.
A worked example
Save ₹10,000 a month for 25 years. Before costs it grows at 11% a year. With 2% costs you end up with far less than with 0.3% costs. The fee gap alone is worth many lakhs. [illustrative]
How to spot it
- ·the total yearly cost shown as one number
- ·no bundled or hidden charges
- ·the fee earned by a service you really use
John C. Bogle · The Little Book of Common Sense Investing