VineLesson 51 · Written for kid, teen, and little
Fees — the silent thief
1% a year sounds tiny — over 30 years it can steal a quarter of your money; over 40 years, closer to a third.
A fee is a cost someone charges for holding or managing your money — often called an expense ratio when it is a fund. Small yearly fees can add up. In a model with one starting investment, no new contributions and the same return before fees, deducting 1% of the balance each year leaves about 26% less after 30 years and 33% less after 40 years than no fee. For otherwise similar funds, lower fees leave you more of any return. Compare costs alongside the fund's holdings, risks and your goals.
Words to know
4Expense ratio (fee)
The annual percent a fund charges you to hold it — taken straight out of your returns, silently. 0.03% on $1,000 is $0.30 a year; 1% is $10.
Low-fee index funds
Index funds can have low operating costs, but fees vary. In a hypothetical fixed $10,000 balance, 0.03% is $3 and 0.05% is $5 for a year. These are examples, not current fund quotes.
Actively managed fund
A fund whose manager selects investments. Costs and results vary. In a hypothetical fixed $10,000 balance, a 1% annual expense is $100.
Financial advisor fee
An advisor may charge a percentage of assets, a flat fee or another fee. Compare the services, total costs and terms; an advisor service is different from a fund expense ratio.
Try a hypothetical fee comparison. Assume the same investment before fees, steady annual compounding and no new contributions.
Start with $25,000 for 30 years. Assume 7% annual growth after inflation before fees: about $190,000. Model an annual fee as a 2-percentage-point reduction, leaving 5% net. What ending amount do you predict, in dollars? This is an illustration, not a promise.
Somewhere between $20,000 and $190,000.
No wrong answers — just guess. The gap between your number and the real one is the lesson.
In the full lesson
- 1Guess, then reveal
- 2Drag and watch
- 3Make the call
Vine has 107 lessons like this one, each written three ways so a 7-year-old and a 17-year-old both get a version that fits.
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