Fees are one of the few things in investing you can control. They look small as percentages, but because they’re taken every year from your whole balance, they compound just like returns do, in the wrong direction.
The main fees to know
- Expense ratio: the annual cost of owning a fund, shown as a percentage of your investment. A 0.10% expense ratio costs $10 a year for every $10,000 invested.
- Advisory or management fees: what you pay a financial adviser or managed service, often a percentage of your assets each year.
- Trading costs: commissions and the bid-ask spread when you buy or sell.
- Sales loads and account fees: one-off charges on some funds, and fees for account maintenance or transfers.
How much difference can 1% make?
Take $10,000 invested for 30 years, with an illustrative 6% average annual return before fees and no further contributions.
| Annual fees | Approximate value after 30 years |
|---|---|
| 0.10% | $55,800 |
| 1.00% | $43,200 |
The higher-fee version ends up about $12,600 smaller, more than the original investment, even though the fee difference was less than one percentage point a year.
How to keep costs down
- Compare expense ratios when choosing between similar funds. Broad index funds are often among the cheapest options.
- Check whether you’re paying for advice you don’t use, and what you get for it if you do.
- Avoid frequent trading, which adds costs and often taxes.
- Read the fee section of a fund’s documents before you buy.
Key takeaway
A higher fee has to be earned back with higher returns, every single year. Low costs are a reliable advantage you can lock in from day one.
This guide is for education only and isn’t personal financial advice. Investing involves risk, including the possible loss of money you invest. Example figures are illustrations, not predictions.