Investment fees look small because they're quoted as a percentage. But they're charged every year on your whole balance, and they compound against you the same way returns compound for you. Over 30 years, a 1% yearly fee can cost about a quarter of what your portfolio would otherwise grow to.
The two fees that matter most
Expense ratio. Every mutual fund and ETF charges one. It's a yearly percentage of what you have invested, taken out of the fund's assets, so you never see a bill. A 0.05% expense ratio costs $5 a year per $10,000 invested. A 0.75% expense ratio costs $75.
Advisory fee. If a robo-advisor or financial adviser manages your money, you usually pay a yearly percentage of your balance on top of the funds' own expense ratios. Robo-advisors often charge around 0.25% to 0.50%. Traditional advisers commonly charge around 1%.
What fees do over time
$100,000 invested once, with a hypothetical 6% yearly return before fees, held for 30 years:
| Total yearly fees | Balance after 30 years | Lost to fees vs. 0.03% |
|---|---|---|
| 0.03% (low-cost index fund) | $569,493 | — |
| 0.25% | $535,071 | $34,422 |
| 1.00% | $432,194 | $137,299 |
The 1% portfolio ends up about 24% smaller than the 0.03% portfolio. The fee itself looks small every year, but each dollar paid in fees also stops earning returns for every year that follows.
These figures are illustrations, not predictions. Real returns vary from year to year and can be negative.
Other fees to look for
- Trading commissions. Most large online brokers now charge $0 to trade U.S. stocks and ETFs online. Options contracts, mutual funds from other companies and broker-assisted trades can still carry fees.
- Sales loads. Some mutual funds charge a percentage when you buy (front-end load) or sell (back-end load). Many no-load funds are available.
- 12b-1 fees. Marketing and distribution fees included in some funds' expense ratios.
- Account transfer fees. Some brokers charge a fee to move your account to another firm. Your new broker may reimburse it.
- Account maintenance or inactivity fees. Less common now, but still found at some firms.
How to find what you're paying
- Look up each fund's expense ratio. It's in the fund's prospectus and on the fund's page at your broker. Search the ticker symbol plus "expense ratio".
- Check your advisory agreement or the robo-advisor's pricing page for the yearly fee.
- Calculate your weighted total. If 70% of your money is in a 0.03% fund and 30% is in a 0.60% fund, your weighted expense ratio is about 0.20%. Add any advisory fee on top.
- Use the SEC's fee calculator on Investor.gov to see the dollar cost over time.
Is a higher fee ever worth it?
Sometimes. A financial adviser who helps with tax planning, retirement income, estate questions, or simply keeps you from selling everything in a downturn may be worth their fee. A robo-advisor's 0.25% may be worth it if automatic rebalancing and tax-loss harvesting mean you invest consistently instead of not at all.
The question to ask is what you get for the fee that you wouldn't do yourself. If the answer is "a portfolio of index funds I could buy directly", a lower-cost option likely gets you the same result.
Low-cost ways to invest
- Broad index funds and ETFs. Funds tracking the total U.S. market or the S&P 500 from large providers often have expense ratios under 0.10%.
- Target-date funds. One fund that holds a mix of stocks and bonds and shifts more conservative as a retirement year approaches. Costs vary widely by provider; compare expense ratios.
- Robo-advisors. Lower fees than most human advisers, with automatic rebalancing.