Inflation discounts the value of your money over time.
The official inflation rate or CPI is an average rate of price movements based on a set weighted basket of goods and services over time.
The average rate points to how your value of you money is discounting over a period.
The higher the rate persists then the less you money will be worth into the future.
Advice fees either improve or erode value of your money over time.
If your financial advisor is adding value your financial planning through qualifications, knowledge and experience which in turn translates into delivery of your expectations then the fees you pay are worth it.
If you can do everything yourself then you can save the fees. So it depends on how much you are prepared to do on your own.
Admin fees are charged by service providers and they vary according to the functionality and service that they provide. These fees will affect the value of your money over time.
Many providers off a sliding scale of fees based on the total value of your investments made with the provider.
Fund management fees will erode the value of your money depending how successful the fund outperforms its benchmark.
If there is no outperformance greater than the fees over the performance of the bench mark then you would be better off investing in the benchmark directly.
For example, an equity fund managers may choose the Satrix Top 40 as its benchmark and charge a management fee of 2%. The charge of Satrix is about 1% per annum, so the fund will have to outperform it by at least 1% just to break even. Many funds don’t manage to do this consistently over time.
Tax will erode the value of your money over time.
One of the mostly ignore aspects about investments is the various taxes that are applied to them.
Endowment policies are taxed at a flat rate depend ending on the entity that owns it.
In the case of an individual, the rate is 30% on all interest earned from bonds and cash which are derived from the various funds that you choose.
Dividends are taxed at a flat rate of 15%.
Capital gains tax is also applied to all investments once you dispose of them.
The cost of debt is an opportunity cost.
The longer you stay in debt the more interest you will keep on paying your creditors. The quicker you pay off your debt the sooner you will be able to divert the interest payments to investments which can increase your wealth and lead to away from decency on institutions to your own financial independence.
The exception is when one borrows to invest in an asset at a lower rate than it appreciates by such as a property.
Conversely, why cars are not investments.
Compounding catapults the value of money into the future provided the net return is above the prevailing inflation rate.
The magical effect of interest on interest compounding over time is where your money greatly appreciates in value. The highest net returns that you can achieve over the longest period of time will provide phenomenal returns on your investment.