Expense ratios: the silent killer
A 1% fee sounds tiny. Compounded over 30 years, it can eat one-third of your final balance. Here's why fees matter so much.
Written for plain-English understanding by Joseph Citizen. Why I built this →
An expense ratio is the yearly fee a fund charges, expressed as a percent of your money. A 0.10% expense ratio means $10 per year for every $10,000 you have invested. A 1.00% expense ratio is $100 per year on the same balance.
Why this matters more than people think
On a single year, the difference looks small. But that fee comes out every year, and it compounds. Over 40 years on a $100,000 investment growing at 7%:
- 0.10% expense ratio: ends at roughly $1,440,000
- 1.00% expense ratio: ends at roughly $1,030,000
- Difference: $410,000 — 28% of your final balance
What's reasonable
- Index ETFs: 0.03% to 0.10% (excellent)
- Index mutual funds: 0.04% to 0.20% (good)
- Actively managed funds: 0.50% to 1.50% (rarely worth it)
- Anything above 1.5%: walk away unless you have a very specific reason
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Important
This lesson is general financial education only. It is not personal investment, tax, accounting, or legal advice. Examples are illustrative. Past performance does not guarantee future results.