Why a 1% Investing Fee Is Easy to Overlook — and Worth Checking
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A yearly percentage can add up over time.
Own a fund? It may help to check the fund’s yearly fee, since no bill shows up. A fund is a bundle of investments run by a company. Each year, the company keeps a slice of your money to cover its costs. Shown as a percentage, that slice is the expense ratio.
Below, we’ll use 1% as an example — a number that can sound too small to matter. You’ll see what it costs in dollars, where to find yours, and how it adds up.
Fee Calculation
Let’s say you put $10,000 into a fund. The fund’s expense ratio, or yearly fee, is 1% of your balance. (The 1% is a round number picked to keep the math easy.)
We’ll assume the balance holds at $10,000 all year and count only this fee. Then $10,000 × 1% = $100, so the fund takes $100 that year.
That may be part of why these fees slip past people. In a 2010 experiment, Choi, Laibson and Madrian had participants allocate a hypothetical $10,000 across comparable S&P 500 index funds. Even with fee information in front of them, many passed over the cheapest option and leaned on past returns. It was one narrow set of near-identical funds, so it doesn’t mean every investor overlooks fees.
You’ll find your own fund’s ratio in its prospectus — more on that next.
Where to Find Fees
A fund’s yearly fee may not appear on an account statement. The statement usually lists the fund’s name, though. Searching that name on the fund company’s website can lead to its prospectus, which describes its goals and costs.
The prospectus has a fee table near the front. One line, “Total Annual Fund Operating Expenses,” is the expense ratio.
One thing can change what you find. Many mutual funds come in classes (versions with different fees), so your statement’s class has the ratio that applies.
Long-Term Fee Comparison
Picture two hypothetical funds that each start with $10,000 and earn 4% a year before fees for 20 years. One charges a 0.25% yearly fee, and the other charges 1%.
Each year, the fund takes its fee first, and then the remaining money grows 4%.
Here’s what year one looks like:
| Step | Lower-fee fund | Higher-fee fund |
| Start of year one | $10,000 | $10,000 |
| Subtract the fee | −$25 (0.25% of $10,000) | −$100 (1% of $10,000) |
| Balance after fee | $9,975 | $9,900 |
| Add 4% growth | +$399 (4% of $9,975) | +$396 (4% of $9,900) |
| Left after year one | $10,374 | $10,296 |
After 20 years, the lower-fee fund would hold about $20,800 and the higher-fee fund about $17,900. The gap, about $2,900, widens each year because money paid in fees can’t keep earning a return. The 4% is an assumption, not a forecast. And fund returns vary, so lower fees don’t guarantee a bigger balance.
Try This Today
Start small — pick one fund in your brokerage or retirement account and look up its expense ratio. Your account page shows what you hold in it, so multiply that by the ratio as a decimal. A 0.45% ratio becomes 0.0045. On $10,000, that’s $45 a year.
Keep in Mind
The expense ratio is only one piece of what investing costs. Our examples leave out other costs, like trading commissions and advice fees. Those vary by fund and by account, so the fee schedules are worth a peek.
Sources
- U.S. Securities and Exchange Commission, “Mutual Funds.” Accessed October 4, 2026.
- U.S. Securities and Exchange Commission, “Exchange-Traded Funds (ETFs).” Accessed October 4, 2026.
- United States Securities and Exchange Commission, “Mutual Fund and ETF Fees and Expenses – Investor Bulletin.” Accessed October 4, 2026.
- Office of Investor Education and Advocacy, U.S. Securities and Exchange Commission, “Updated Investor Bulletin: How to Read a Mutual Fund or ETF Shareholder Report.” Accessed October 4, 2026.
- Office of Investor Education and Assistance, U.S. Securities and Exchange Commission, “How Fees and Expenses Affect Your Investment Portfolio – Investor Bulletin.” Accessed October 4, 2026.
- U.S. Securities and Exchange Commission, “Investor Bulletin: Mutual Fund Fees and Expenses.” Accessed October 4, 2026.
- 7. Choi, James J., David Laibson, and Brigitte C. Madrian. “Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds.” Review of Financial Studies, 2010. Accessed October 5, 2026.
