Prescient briefing: Real return and the value of going direct

By , 18 September 2020

Sponsored: At thinkdirect, we’re pretty passionate about helping clients get the most for their money. After all, you’re investing for your future, and that means you should get to keep as much of your money as possible.

Investment fees have been a hot topic for a while now, with constant talk about EAC, TER, TIC or even TPSUQMEY. Okay, we made that last one up, but you get the point.

Fees are important, no doubt about it. The more you pay for an investment product, the less of your return you get to keep. However, there are another two important factors that some might try to ignore when talking about your investments, and 10xing your money.

Those two important factors are: inflation and returns.

Inflation is that thing where your money is worth less each year. A bit like when we all reminisce about the price of a bottle of wine back in varsity, compared to how much more it costs now. Or how the price of bread keeps going up each year, so the same loaf you bought last year costs a bit more this year.

The second factor – returns – are the net outcome of your investment, pushed up or down by movements in the market. This is driven by your asset manager, and their investment philosophy.

When you combine both inflation and returns with your investment fees, you get … another acronym!

Just kidding. You get what is called “Real Return”.

Real Return is the number we should actually care about, mainly because it’s the real value you get out of your investment each year. It’s your growth.

A quick and dirty Real Return calculation goes a bit like this:

It’s your total investment return, minus fees, minus inflation.

So, imagine you got a 10% return and your total fee was 3%. You’d be left with 7% return that year (10 – 3 = 7). However, inflation is 5%. That means your Real Return is actually 2% (10 – 3 – 5 = 2).

Now, we could dive a little deeper into the Real Return calculation, as there are a few extra nuisances we could add. But for now, we’ll leave that to Stealthy Wealthy, who wrote a great article on it here.

Like we said at the top, we’re really keen on helping clients get the most for their money, and that’s about helping them get the best Real Return. One of the huge benefits of going direct is that it keeps your costs down, and that helps you keep your Real Return as high as possible. Pair that with Prescient’s long-term philosophy for consistent returns, and you’ve got a recipe for success.

If you’re interested in getting the best Real Return, why not try thinkdirect with Prescient? Check out our new website, play with a calculator or two, and sign-up to be the first to know when we go live. It’s the first step to direct investments that you can count on.

It’s clear we think going direct is pretty cool. In fact, so cool we might have to call ourselves Prince!

Gotcha again 😉

  • Prescient, a multinational financial services company, is sponsor of all category reports.


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