How investment fees affect long-term returns

Investment fees look small as annual percentages, but they reduce both today's balance and the future growth that balance could have earned.

Fund expenses

A fund expense ratio is deducted from fund assets and reduces investor return. Similar funds can have materially different costs.

Advice and platform fees

Advisory, wrap, account, subscription, and platform fees may sit on top of fund expenses. Add applicable layers without double counting.

The compounding effect

The long-run impact is not only the fee charged. Each dollar removed also stops participating in future gains, so the gap can widen over decades.

Cost is one factor

Lower cost is valuable when investments and services are otherwise comparable. Risk, diversification, taxes, tracking, advice quality, and investor behavior also matter.

Primary source

SEC Investor.gov: understanding investment fees