A 0.75% Fee Difference Cost $29,000. Here Is the SEC Example

Fund fees are quoted as decimals - 0.25%, 1.00% - which is a presentation that makes them feel like rounding errors. The SEC publishes an illustration that shows what they actually do, and it is worth sitting with.

The example

Take a $100,000 portfolio growing at 4% a year for 20 years, and vary only the annual fee:

• 0.25% annual fee: about $208,000 after 20 years
• 0.50% annual fee: about $198,000
• 1.00% annual fee: about $179,000

The gap between the cheapest and most expensive option is roughly $29,000 - close to 15% of the final value - and the only difference between them is three quarters of one percentage point.

The SEC's framing is blunt: these fees may seem small, but over time they can have a major impact on your investment portfolio.

Why the damage is so much larger than the fee

A 1% fee does not cost you 1%. It costs you 1% and everything that 1% would have earned for the rest of your investing life.

Every pound taken out this year is a pound not compounding next year, and the year after. The fee is charged annually on the whole balance, so as your portfolio grows the absolute amount extracted grows with it, while the returns available to compound shrink.

This is the same mechanism that makes long-term investing work, applied against you. You can see the shape of it by running two scenarios through our investment calculator with returns differing by the fee amount.

Over a 40-year working life rather than 20 years, the gap widens dramatically.

Where the fees are

The expense ratio is the headline annual fee for a fund, expressed as a percentage of assets. It is deducted from fund assets rather than billed to you, which is precisely why it is easy to ignore - you never see it leave.

Advisory fees are charged by an adviser or platform managing your money, often around 1% of assets annually, and sit on top of the expense ratios of the funds held.

Transaction costs, loads and account fees apply variably. Sales loads - a percentage taken on purchase or sale - are worth identifying, because they come off the top before anything compounds.

Two portfolios holding broadly similar assets can differ by more than a percentage point once these are stacked.

What to actually do

• Look up the expense ratio of every fund you hold. It is in the prospectus and on any fund page. If you do not know your numbers, you cannot evaluate anything else
• Add up the layers. Platform fee plus advisory fee plus fund expense ratios is your real cost
• Compare like for like. A higher fee is only worth paying for something the cheaper option does not do. For broad market exposure, the cheaper option generally does the same thing
• Be sceptical of fees justified by past outperformance. Costs are certain and persistent; outperformance is neither

The one caveat

Lowest fee is not automatically best. A fee buys something - diversification, rebalancing, tax handling, or in the case of an adviser, potentially stopping you doing something destructive in a market panic. That last one has real value for some people.

The point is not that fees are always bad. It is that fees are certain while the benefits they buy are uncertain, so the burden of proof sits with the fee. The SEC's example is what happens when nobody asks it to justify itself.

Sources

• SEC Investor.gov: Understanding investment fees
• SEC Investor.gov: Mutual funds and ETFs

Current as of August 2026. The 4% return is the SEC's illustrative assumption, not a forecast. Investments can lose value.