Course outline
Lesson 13 of 206 min read
Fees add up
A 1% fee sounds tiny, but over decades it can take a large share of your growth. Low costs are one of the few things you control.
The fees to watch
- Expense ratio: a fund's yearly fee, as a percentage of what you have invested. Broad index funds often charge under 0.10%; many actively managed funds charge 0.5–1% or more.
- Advisory fees: some advisers and managed accounts charge around 0.25–1% a year on top of fund fees.
- Trading and account fees: many large US brokerages now charge $0 to trade stocks and ETFs, but check for account, transfer or inactivity fees.
Fees are taken out whether your investments go up or down, and they compound against you just like returns compound for you.
What a fee costs over 30 years
Compare two fees yourself. This calculator treats the fee as coming straight off the yearly return, which is a close approximation.
Fee comparison
Starts with $10,000. Same plan, two different yearly fees.
An assumption, not a promise.
Ending balance after 30 years
Fees cost about $3,595 compared with no fee at all.
Fees cost about $64,030 compared with no fee at all.
$60,435
difference from a 0.95 percentage point gap in fees. You put in $82,000 either way.
Fees are taken off the yearly return. Taxes, inflation and trading costs aren't included.
How to find a fund's fees
Search the fund's ticker on your brokerage or the fund company's website and look for “expense ratio” or “net expense ratio”. It's also listed in the fund's prospectus and fact sheet.
Key takeaways
- Fees are charged every year, in good markets and bad.
- A difference of under 1% a year can cost tens of thousands over decades.
- Check the expense ratio before you buy any fund.
Key terms
- Expense ratio
- The yearly fee a fund charges, shown as a percentage of the money you have invested in it.
- Index fund
- A fund that tracks a market index, such as the S&P 500, instead of trying to pick winners.
Check your understanding
Quick quiz
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