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.

The same drag at different fee levels

Fees compound because money paid as a fee is not only gone, it also stops generating returns for every year that follows. Here is $100,000 invested for 30 years at a 7% gross return, under different annual costs.

The 2% fund does not cost 2% more than the 0.05% fund. Over thirty years it costs about 43% of the final balance.

Note the shape: the difference between 0.05% and 0.25% is $41,000, while the difference between 1% and 2% is $142,000. Each additional percentage point costs more than the last, because it is removed from a base that the previous points already shrank.

Why the damage exceeds the fee

A 1% annual fee sounds like it should cost 30% over thirty years. It costs closer to 25% of the final balance — but of a balance that is itself much larger than what you contributed.

The reason is that each year's fee removes capital that would have compounded for every remaining year. A fee paid in year one does not cost you 1% of $100,000; it costs you 1% of $100,000 plus all the growth that $1,000 would have produced over the next 29 years.

That is the same mechanism described in compound interest explained, operating on the money leaving your account rather than the money staying in it.

Where the costs actually are

Fees are rarely presented as a single number, and several of the largest are not labelled as fees at all.

The two that most often escape notice are layering and cash drag. Layering is paying an advisory fee on top of funds that carry their own expense ratios, so your true annual cost is the sum of both — a 1% advisory fee plus 0.75% funds is 1.75%, not 1%. Cash drag is an allocation to cash within a managed account, on which you are typically still charged the advisory fee.

What to actually check

1. Add every layer together. Ask for your all-in annual cost as a single percentage, and do not accept a fund-level figure as the answer.
2. Read the expense ratio of every fund you hold. It is disclosed and takes minutes to find.
3. Ask directly whether your adviser is a fiduciary, and get the answer in writing. The obligation to act in your interest is not universal.
4. Ask how they are paid, including any commission or revenue sharing from products they recommend.
5. Check for sales loads, which are avoidable entirely and rarely justified.
6. Compare like for like. An index fund tracking the same benchmark as an actively managed fund is doing the same job at a fraction of the cost.

The caveat worth stating

Lowest cost is not automatically best. There are things worth paying for:

• Behavioural coaching. An adviser who stops you selling in a downturn can be worth many times their fee, because the cost of a badly timed exit dwarfs the cost of advice.
• Genuine complexity. Estate planning, concentrated stock positions, business ownership, or complicated tax situations are areas where good advice earns its keep.
• Not doing it at all. A 1% fee on an account that exists beats 0.05% on an account you never opened.

The point is not that fees are always wrong. It is that a fee is a known, certain, compounding cost, and it should be traded against something specific rather than accepted by default. If you cannot name what a fee is buying, that is the signal.

You can model the difference for your own balance and horizon with our investment calculator by running the same figures at your gross return and again at your return minus your all-in fee.

Fees against contributions, not just balance

A second way to see the scale: express the fee as a share of what you contribute rather than of what you hold.

Someone contributing $500 a month for 30 years puts in $180,000. At 7% gross:

At 1.5%, the total taken in fees approaches the total you contributed. You supplied the capital and took all of the risk; the fee took an amount comparable to your entire contribution.

Framed that way, the question stops being whether a fraction of a percent matters and becomes what, specifically, you are receiving for something priced like a second set of contributions.

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.