Video courses › The instruments: how they work › Lesson 5

Costs: small numbers, large effect

Which costs exist, where they are written down and why one percentage point a year weighs so much over the long term.

Video lesson in preparation (AI-generated presenter). Full text below.

Lesson text

Every financial instrument has costs, and they are not always obvious. Some are paid once, such as entry or dealing fees. Some recur, such as a fund's management fee, which is taken from the fund's assets every year and so never appears as a charge on your statement. Some relate to the service, such as advice or custody fees, and then there are taxes.

Recurring costs deserve the most attention, precisely because they are barely visible and they repeat. The reason is compound interest, which also works in reverse. A hypothetical example: two identical instruments, both returning 4% a year before costs for twenty-five years. The first costs 0.3% a year, the second 1.8%. On an initial 10,000 euros, the first would reach about 24,800 euros, the second about 17,200.

The difference, more than 7,000 euros, does not depend on anyone's skill: it depends only on costs. Of course this is a constant-rate example, which does not exist in reality, and a higher cost may pay for an additional service that some people value. The point is not that the cheapest is always the best, but that cost must be known and weighed.

Where are costs found? In the key information document, which shows total costs and their effect on return, and in the annual statement that the intermediary must send to the client with all costs incurred, in money and as a percentage. Asking "how much does this cost me in total, every year?" is a legitimate question to which you are entitled to a clear answer.

In three points

• There are one-off costs, recurring costs, service costs and taxes.
• Recurring costs compound: small differences become large over time.
• Total costs are shown in the information documents and in the annual statement: you have a right to know them.

Educational and informational content only. It is not personalised financial, investment or tax advice. All investments involve risks, including the possible loss of invested capital.

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