Question 1

How much do investment fees actually cost over time?

Accepted Answer

More than most people realize. On a $100,000 portfolio growing at 7% over 30 years, a 1% annual fee reduces your ending balance by roughly $230,000 compared to a 0.03% index fund. That's because fees compound in reverse — every dollar taken in fees is a dollar that can no longer earn returns for you.

Question 2

What is a good expense ratio for an index fund?

Accepted Answer

Total market and S&P 500 index funds from major providers like Vanguard, Fidelity, and Schwab typically charge 0.01% to 0.05%. International index funds run 0.05% to 0.15%. Anything above 0.20% for a passive index fund is worth questioning. Actively managed funds average around 0.50% to 1.00% or higher.

Question 3

What is the difference between an expense ratio and an advisory fee?

Accepted Answer

An expense ratio is charged by the fund itself and is deducted from your returns automatically. An advisory fee is charged by a financial advisor for managing your portfolio, usually as a percentage of assets under management (commonly 0.5% to 1.0%). These stack — if you pay a 1% advisory fee and your funds have a 0.50% expense ratio, your total cost is 1.50% per year.

Year	No Fees	With Fees	Fees/Yr	Total Fees	Lost to Fees
1	$17,120	$16,992	$128	$128	$128
2	$24,738	$24,417	$185	$313	$322
3	$32,890	$32,302	$244	$557	$589
4	$41,612	$40,675	$307	$864	$937
5	$50,945	$49,568	$375	$1,239	$1,377
6	$60,931	$59,012	$446	$1,685	$1,920
7	$71,617	$69,041	$522	$2,207	$2,576
8	$83,050	$79,692	$602	$2,809	$3,358
9	$95,283	$91,002	$688	$3,496	$4,281
10	$108,373	$103,014	$778	$4,275	$5,359
11	$122,379	$115,770	$875	$5,150	$6,609
12	$137,366	$129,317	$977	$6,127	$8,049
13	$153,401	$143,703	$1,086	$7,213	$9,698
14	$170,559	$158,981	$1,201	$8,414	$11,578
15	$188,919	$175,206	$1,324	$9,738	$13,713
16	$208,563	$192,436	$1,454	$11,192	$16,127
17	$229,582	$210,734	$1,592	$12,785	$18,848
18	$252,073	$230,166	$1,739	$14,524	$21,907
19	$276,138	$250,803	$1,895	$16,419	$25,336
20	$301,888	$272,718	$2,061	$18,480	$29,170

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