You're listening to Radio Aysha and today I'm going to talk about investing the old fashioned way and why this means a lot of fees which in turn negatively impacts your investment performance in the long term and that in a big way. So, does this sound like you? You've invested in a fund or some kind of mandate suggested by your bank and you can't really see what's in there?

Or you made a long term investment with a life insurance for the next 25 years or so, you did that a while ago and you're not really sure if it was a good decision? Or maybe you don't feel very confident about all this money stuff and you'd rather have professionals look after your money. And if that's how you feel, you're definitely not the only one.

Because until a few years ago, there were not many alternatives to the banks or insurances, especially here in Europe. And also, it's only in the last few years that many studies have proven that investing the old fashioned way Actually doesn't work so well and also is just the way most people do it.

It's what our parents and everyone else around us has been doing like forever. So that's why it feels like that's the way to go. Or it felt like that for a while. The issue with investing the old fashioned way with banks and insurance companies is that they are active investors. Active investing basically means doing lots of stock market research, selling.

Collecting good stocks, buying them, selling them when it's supposedly the right time, etc. All of that is actually very expensive because as you can imagine, it requires lots of efforts, time and experts and all of that, all these people cost a lot of money. And the big problem is that even when they do all their research and trading and portfolio management and allocation changes and all of that, even when they do All of that, they are somehow unable to generate a return that's high enough to cover the fees that they charge compared to if you would just invest in the stock market as a whole without trying to be smart or do anything fancy.

And here is how that can look like. What you see here is that when you invest for the long term, meaning at least 10 years, the longer you invest, the more your portfolio grows. This is the mathematical effect of long term investing. It's called compounding.

So if you start with, let's say, 10,000 Euro and invest 200 Euro per month for 40 years, then if you invest In the modern way, with the low cost investment option, say a NYSHARE ETF with an annual fee of 0.20%, you will probably end up, as per the research and 100 years of investing, with over 500,000 Euros. And if you go to some regular bank like BNP Paribas or UBS or KBC or whatnot, they will charge you something like 2.5 percent even if they say they charge less like 1 percent or 1.5 percent in the marketing material. In effect, with all the hidden fees, you're likely to pay 2.5% annually or even higher.

And in this case, with that level of fees, you will end up after 40 years with only 275,000 rather than in excess of 500,000 big dIfference.. And of course, things are even worse if you go to some insurance company which usually charge crazy high fees of about 4. 5 percent and that would bring you to only 165,000 Euro which is quite frankly barely more than the 105,000 in total you invested in the first place.

And it's not enough to keep up with inflation, that's for sure. And so that's why investing the old fashioned way in a fund from a traditional bank or with an insurance policy is a bad idea because they need to charge high fees to support the entire infrastructure and they also clearly want to make the most money out of you and that means you're just losing out at the end.

And so all of that means that when you invest with a regular bank or insurance, your money can't really grow as much as it should. And over several decades, the impact is huge. It's half the money, maybe less, maybe more. Usually more, depending on how high the fees are and how long you invest. And at the end of the day, it means that your savings can grow to a level that will be high enough to sustain you once you get old.

Now, when you instead choose to invest with the low cost option, your money is finally generating market returns and can grow the way it should. And so you are able to fight inflation and build financial security over time for when you retire. And importantly, you have more control over your finances and your life in general, and over the way your money is invested.

So I want to read you that quote. And let it resonate with you. It is difficult to get a man to understand something when his salary depends upon his not understanding it. And I want you to consider this when you are talking to a bank specialist or someone from an insurance company because their, you know, explanations and point of view are naturally biased so you really can't take them at face value.

That's all I had for you today in this episode and if you're ready to invest with knowledge, grow a large portfolio and avoid costly tax and pension mistakes, then I invite you to click the link that you can find in the description of this episode to apply now for your invite to join us inside the Invest at REST program.

And other than that, wishing you a great day and I'll see you in the next episode.