I have long argued that charges are not always the be all and end all when it comes to investing.

The problem is that we are fixated on charges and a belief that the higher the charges the more you will lose in your investments. To lower charges further there is an argument that funds which track an index will deliver better returns than an active fund because of the lower charges and the inability for many managers to beat the index.

For nearly five years we have been running portfolios, and recently I put together a closely matching portfolio tracking the index. The index takes into account a charge of around 0.4% and ours including the platform charge, fund charges and our fee comes in at around 1.7%. That is a whopping 1.3% p.a. difference.

Each year we review the funds and rebalance.

Our Cautious Portfolio has returned 84% since 1 January 2009; the equivalent index portfolio would have returned 43%.

On the more adventurous side the portfolio has delivered nearly 95% return and the index 57%.

This means on the cautious side we have delivered 95% out performance and 67% on the adventurous side with a 1.3% p.a. drag.

This blog is not about how good we are, the point of the blog is this. We are conditioned to think that high charges kill performance however good active managers will charge more as will financial planners however if they can deliver significant returns over the equivalent tracker portfolio then actually these higher charges are insignificant.

Of course there are two additional points to consider, often when investors choose trackers they do not develop a portfolio of tracker funds and therefore heighten the risk and potentially lower the return and secondly investors can develop their own active portfolio. The cost of an equivalent active portfolio without advice would be around 1.35% p.a. The question then is, is it worth paying 0.35% p.a. to get someone to do the research and build the portfolios for you as well as giving you piece of mind with regards to your financial plans.

In conclusion what is painted is not always true you need to dig deeper, think deeper and sometimes go against the crowd to achieve what you want.

NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.