Every percentage point paid as fee matters in long-term wealth growth

The brain finds it comfortable to shut down when faced with too much complexity. To fix that, we have to simplify, even if that requires a small sacrifice in accuracy

There is a bug in the human brain owing to which it rushes to the conclusion that a fee of 1 per cent per annum (pa) over any number of years totals up to 1 per cent of the amount. That is completely wrong. The brain struggles to understand that a fee of 1 per cent pa over 10 years becomes a total fee of about 10 per cent. Nobel Prize-winner William Sharpe correctly observed that minimising investment costs, along with diversification, are the two most important rules in investing. So, let us fix this bug.

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